Novosel v. Azcon Inc.
In this ESOP-related case, the plaintiff (an ESOP plan beneficiary) raised three complaints, two of which were primarily the result of the performance and use by the ESOP of an interim valuation date for measurement of the value of her shares for her retirement payments made over time. There was also discussion regarding the interim value determined and whether a PPP loan of $1.2 million should have been considered. The defendants moved for dismissal on the first two accounts. The court denied the dismissal of the first complaint in regard to assertions that the use of the interim valuation date was arbitrary and capricious. It also allowed the filing by the plaintiff of a second amended complaint. The court granted the defendants’ motion to dismiss the plaintiff’s complaint regarding the asserted cutback of accrued benefits.
ESOP Case Motions Revolve Primarily Around an Interim Valuation and Consideration of a PPP Loan
In this ESOP-related case, the plaintiff (an ESOP plan beneficiary) raised three complaints, two of which were primarily the result of the performance and use by the ESOP of an interim valuation date for measurement of the value of her shares for her retirement payments made over time. There was also discussion regarding the interim value determined and whether a PPP loan of $1.2 million should have been considered. The defendants moved for dismissal on the first two accounts. The court denied the dismissal of the first complaint in regard to assertions that the use of the interim valuation date was arbitrary and capricious. It also allowed the filing by the plaintiff of a second amended complaint. The court granted the defendants’ motion to dismiss the plaintiff’s complaint regarding the asserted cutback of accrued benefits.
BV News and Trends December 2022
A monthly roundup of key developments of interest to business valuation experts.
BV News and Trends November 2022
A monthly roundup of key developments of interest to business valuation experts.
Another big win for ESOP valuations vs. the DOL
Valuation experts have long maintained that the Department of Labor (DOL) has been playing by its own valuation rules in its aggressive enforcement of ESOPs—rules that are not consistent with accepted valuation standards. But a court has rejected the valuations the DOL did in a case alleging that an ESOP overvalued (and thus overpaid for) the stock of its sponsoring company.
Warranting Further Discussion: Why the Use of Financing Warrants in ESOP Transactions Benefits American Workers
The leveraged Employee Stock Ownership Plan (ESOP) structure was created by US Congress to enable American workers to gain an equity interest in their companies without using their own funds. A critical component in the financing of leveraged ESOP transactions is a “warrant,” which enables corporate sponsors of ESOPs to access the financing necessary to facilitate purchases of company stock by ESOPs. Warrants also afford substantial benefits to ESOPs by providing downside risk for ESOP ...
BV News and Trends July 2022
A monthly roundup of key developments of interest to business valuation experts.
Takeaways from the ASA’s first ESOP conference
The American Society of Appraisers hosted the inaugural ESOP Virtual Conference on June 21, and here are some notable bits of information we learned.
Couturier v. Comm'r
The Tax Court was asked in this ESOP-related case to approve the taxpayer’s motion for summary judgment. The petitioner contended that the IRS “is precluded as a matter of law from asserting excise tax liability under section 4973” because it did not issue him a notice of deficiency challenging his income tax treatment of the transactions that generated the excess contributions. The motion was denied. The alleged excess contributions were more than $26 million with alleged excise tax of more than $8 million.
Tax Court Denies Taxpayer’s Motion for Summary Judgment Relative to an Excess IRA Contribution Relating to an ESOP Purchase/Sale
The Tax Court was asked in this ESOP-related case to approve the taxpayer’s motion for summary judgment. The petitioner contended that the IRS “is precluded as a matter of law from asserting excise tax liability under section 4973” because it did not issue him a notice of deficiency challenging his income tax treatment of the transactions that generated the excess contributions. The motion was denied. The alleged excess contributions were more than $26 million with alleged excise tax of more than $8 million.
ESOP valuations may be at a turning point
At last week’s inaugural ESOP Virtual Conference hosted by the American Society of Appraisers, the landmark Bowers case was discussed, which could represent a turning point for ESOP valuations.
BV News and Trends May 2022
A monthly roundup of key developments of interest to business valuation experts.
ASA debuts virtual ESOP conference June 21
The American Society of Appraisers has added a new specialized event to its conference schedule: the 2022 ASA ESOP Virtual Conference on June 21.
DOL proposes change to ESOP prohibited transaction exemption requirements
ESOP appraisers should take note of a proposed rule to amend the Department of Labor (DOL) prohibited transaction exemption procedure, reports the American Society of Appraisers (ASA).
Harrison v. Envision Mgmt. Holding, Inc.
The U.S. District Court (Colorado) denied a motion to compel arbitration the defendants brought in a case the plaintiff participants brought (a purported class action) in an ESOP the defendant company, et al. established. “The Plaintiff argues that the Defendants’ actions related to the sale caused him and all other ESOP participants to suffer significant losses to their ESOP retirement savings.” The court denied the motion.
U.S. District Court Denies Motion of Defendants in an ESOP Case to Compel Plaintiff Into Arbitration
The U.S. District Court (Colorado) denied a motion to compel arbitration the defendants brought in a case the plaintiff participants brought (a purported class action) in an ESOP the defendant company, et al. established. “The Plaintiff argues that the Defendants’ actions related to the sale caused him and all other ESOP participants to suffer significant losses to their ESOP retirement savings.” The court denied the motion.
Stout Risius Ross, LLC v. Aspen Specialty Ins. Co.
Stout Risius Ross LLC asked for a declaratory judgment to require Aspen Specialty Insurance Co. to defend Stout Risius Ross in a lawsuit brought against it by its former client, Wilmington Trust, in an ESOP matter. Stout Risius Ross performed a valuation for an ESOP transaction that the court later criticized in that matter (Brundle). After being sued by Wilmington Trust, Stout Risius Ross filed a claim with Aspen, which was denied by Aspen, citing the “prior knowledge” clause. The court denied Stout Risius Ross’ motion for declaratory judgment and did not allow Stout Risius Ross to amend its motion.
U.S. District Court Dismisses Accounting Firm’s Plea to Require Insurance Company to Defend a Lawsuit Against It
Stout Risius Ross LLC asked for a declaratory judgment to require Aspen Specialty Insurance Co. to defend Stout Risius Ross in a lawsuit brought against it by its former client, Wilmington Trust, in an ESOP matter. Stout Risius Ross performed a valuation for an ESOP transaction that the court later criticized in that matter (Brundle). After being sued by Wilmington Trust, Stout Risius Ross filed a claim with Aspen, which was denied by Aspen, citing the “prior knowledge” clause. The court denied Stout Risius Ross’ motion for declaratory judgment and did not allow Stout Risius Ross to amend its motion.
ESOP companies more optimistic about recovering
Valuation experts assessing how a subject company will recover from the pandemic will be interested in a new study.
15 Cautionary Areas to Review in ESOP Valuations
Business valuation practitioners perform private-company equity appraisals for many applications including gift/estate tax planning, transaction opinions, and financial reporting; yet ESOP valuation assignments present complex challenges. Not only is the purpose of the appraisal unique, but the particular client, an ESOP trustee (acting as a fiduciary), also has many ESOP-specific disclosures and requirements. A well-developed ESOP valuation report may not simply achieve the appraisal prescription set forth in Revenue Ruling 59-60 or USPAP compliance. Join ...
Silver lining to Vinoskey ESOP appeal decision
In the well-publicized Vinoskey ESOP case (our latest coverage is here), the appellate court affirmed the district court in deciding that the company owner had extensive knowledge about the company and its prior valuations, and, thus, it was plausible to infer that “something was off.”
An Inside Look at the Landmark ESOP Valuation Case
For over a decade, the Department of Labor has not lost a major ESOP case on a valuation issue, but its winning streak ended with Walsh v. Bowers. The case involves many key valuation issues, and Ken Pia (Marcum LLP) and Ian Rusk (Rusk O’Brien Gido + Partners LLC), expert witnesses for the defense, give their insights.
BV News and Trends November 2021
A monthly roundup of key developments of interest to business valuation experts.
Key ESOP case underlines importance of the management interview
In the published opinion in the groundbreaking recent Walsh v Bowers ESOP case, the court noted that the DOL’s valuation expert’s “failure to follow Uniform Standards of Professional Appraisal Practice (USPAP) introduced substantial errors into [his] analysis.”
Will the landmark ESOP valuation case open the door?
During an amazing webinar with the testifying experts in the recent Walsh v Bowers ESOP case, a question came in from the audience: “Do you think this case will open the door for the Department of Labor and the valuation profession to work together to develop guidance around ESOP valuations?”