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GreatBanc Trust Co., one of the largest trust companies in the U.S., is accused of breaching its fiduciary duties by authorizing the sale of Chemonics International Inc. stock to the company’s employee stock ownership plan for more than fair market value ( McMaken v. GreatBanc Tr. Co. , N.D. Ill., No. 1:17-cv-04983, complaint filed 7/5/17 ).
GreatBanc, as the ESOP trustee, allegedly caused the plan to pay $216 million for Chemonics stock—a transaction financed by Chemonics shareholders, who were also the sellers with a note to be repaid over a 20-year period—according to a lawsuit filed July 5 in the U.S. District Court for the Northern District of Illinois. To authorize the transaction, GreatBanc allegedly relied on unrealistic growth projections, unreliable or out-of-date financial documents, improper discount rates, and inappropriate comparable companies, the lawsuit said.
The ESOP transaction, which took place in 2011, allowed the company shareholders to unload their interests in Chemonics at an inflated price and saddle participants with millions of dollars of debt to finance the transaction, the lawsuit said.
The ESOP paid a control premium for Chemonics even though it didn’t obtain control over the company after its purchase, as the shareholders continued to control the board of directors, the lawsuit said. The plan didn’t receive a discount for lack of control, according to the lawsuit.
GreatBanc’s handling of ESOP transactions had landed it in hot water several times. Last year, a federal appeals court reversed a district court decision in GreatBanc’s favor, holding that participants in the Personal-Touch Home Care Inc.'s ESOP made sufficient allegations of fiduciary breach against the trustee to survive dismissal. A Department of Labor lawsuit against GreatBanc settled for more than $5 million in 2014.
The new lawsuit was filed by Michael V. McMaken, Chemonics’ former director of safety and security. He seeks class treatment for 2,454 plan participants.
GreatBanc didn’t immediately respond to Bloomberg BNA’s request for comments.
Bailey & Glasser LLP represents the proposed class.
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