First Bankers Hit With $9.5M Judgment in Employer Stock Row

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

First Bankers Trust Services Inc. must pay nearly $9.5 million for facilitating a stock transaction that overvalued a residential construction company based on data from the height of the housing market ( Perez v. First Bankers Tr. Servs., Inc. , D.N.J., No. 3:12-cv-04450, unpublished 3/31/17 ).

The Department of Labor sued First Bankers for overseeing a $16 million stock transaction between the president of New Jersey construction company SJP Group Inc. and the company’s employee stock ownership plan. After a 17-day bench trial, a federal judge on March 31 agreed with the DOL that First Bankers was liable for causing the plan to overpay for the president’s stock by nearly $9.5 million.

First Bankers and the DOL are also embroiled in litigation over the trust company’s role in transactions involving the employee stock plans of metal manufacturer Rembar Co. and denim maker Maran Inc. Last month, a federal judge ordered another plan trustee, Wilmington Trust N.A., to pay $29.8 million in a case involving government security contractor Constellis Group Inc. A similar challenge brought by employees of juice maker Mona Vie Inc. netted a $19.8 million settlement with Bankers Trust Co. and other defendants in 2016.

In the SJP case, the judge said that the $16 million stock transaction was based on an appraisal that relied too heavily on data from 2006, which was SJP’s most profitable year and near the peak of the residential housing market. The appraisal also wrongly treated SJP’s innovative rock-crushing equipment—which allowed the company to work in rocky conditions that were difficult to develop—as valuable proprietary technology, when it should have been treated as equipment that could be purchased on the open market by anyone.

These errors infected the transaction, the judge said, because First Bankers delegated its responsibilities as trustee to third parties and relied on their conclusions without sufficient oversight.

Given this, the judge concluded that First Bankers breached its duties of loyalty and prudence under the Employee Retirement Income Security Act. He entered judgment of $9.49 million—plus interest—which represented the amount by which the SJP plan overpaid for the president’s stock.

The DOL settled its claims against SJP’s president for more than $2 million in 2016.

Judge Michael A. Shipp of the U.S. District Court for the District of New Jersey wrote the unpublished, March 31 decision.

The DOL represented itself. Fox Rothschild LLP represented First Bankers.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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