The DOL’s aggressive oversight strategy concerning ESOPs has led to a number of controversial lawsuits in recent years. Last year, we reported on the Acosta v. Vinoskey case and particularly the defendants’ semi-successful Daubert attack on the DOL’s damages expert.
Although the court then agreed to strike one of the DOL’s claims, the government’s overpayment claim survived and recently was tried. The parties’ post-trial briefs show that there is no commonality between the two sides’ valuation narratives.
The impetus for the DOL suit was a 2010 transaction in which the owners of a Virginia company sold the remaining 52% of their company stock to an ESOP for $406 per share. The DOL argues this price far exceeded fair market value and accuses the independent trustee (and indirectly the ESOP appraiser) of failing to represent the interests of the ESOP and causing the latter to overpay.
At trial, the DOL’s damages expert alleged the ESOP appraiser “artificially inflate[d] the stock price” by manipulating the capitalization of earnings method. According to the DOL expert’s valuation, the ESOP paid $20.7 million for stock that was worth about $9.2 million. The DOL asks the court to restore to the ESOP over $11.5 million in losses and prohibit the defendants from serving as ERISA trustees in the future.
For details about the defendants’ response and access to the parties’ briefs, click here.