In November 2017 First Bankers Trust Services Inc. agreed to a $16 million settlement in order to resolve 3 DOL ERISA suits alleging they breached fiduciary duties by allowing 3 employee stock ownership plans to overpay for their own companies’ stock. First Bankers also committed to reforming its practices and policies regarding the handling of employee stock plan transactions.
The settlement will put an end to 3 DOL suits brought in 2012 after investigations into plans sponsored by SJP Group Inc., Maran Inc., and Rembar Co. Inc. Each of the plans gets payouts from First Bankers (SJP’s plan will receive $8 million, Maran’s plan will receive $6.6 million and Rembar’s plan will receive $1.1 million). The settlements offer reimbursement to plans and participants as well as committing First Bankers Trust Services to clear procedures and transparency in order to ensure appropriate compliance in future dealings.
According to DOL, First Bankers was both trustee and fiduciary for all three of the plans cited and as such, they had an obligation under ERISA to make sure that the plans did not pay more than fair market value for company stock. Also according to DOL, First Bankers signed off on purchases without doing the due diligence required of their position. Their failure to do so allegedly resulted in the plans overpaying millions for the stock.
SJP, a New Jersey based paving company: The case regarding SJP went to bench trial in New Jersey federal court in 2016. U.S. District Judge Michael A. Shipp issued a ruling in March finding that First Bankers breached is duties and engaged in ERISA-prohibited transactions resulting in SJP’s plan to overpay close to $9.6 million for SJP’s own stock.
Maran, a New York based clothier: At a bench trial in April, U.S. District Judge George B. Daniels of New York’s Southern District agreed to hold off judgment due to settlement discussions between the parties.
Rembar, a New York based maker of precision parts from refractory metals: The Rembar case was still awaiting trial at the time of the settlement discussions.
These cases make it clear just how vital it is that those retained to advise a plan about stock purchases fulfill their fiduciary duties; making sure that the price a plan pays for the plan sponsor’s stock reflects true market value.