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Wilmington Trust N.A. is accused in a proposed class action of violating ERISA by authorizing the sale of ISCO Industries Inc.'s stock to the company’s employee stock ownership plan for $59 million more than the stock was worth ( Swain v. Wilmington Trust , D. Del., No. 1:17-cv-00071, complaint filed 1/25/17 ).
The ESOP purchased the stock for $98 million, but just 11 days after the purchase, an independent appraiser revalued the company stock at $39 million, according to the lawsuit filed Jan. 25 in the U.S. District Court for the District of Delaware. Two plan participants, who filed the lawsuit on behalf of the plan and more than 300 participants, also allege that the transaction allowed ISCO’s prior owner to unload his interests in the company at an inflated price. It also saddled participants with millions of dollars of debt payable to the company to finance the transaction, they allege.
This isn’t the first lawsuit Wilmington Trust faces over alleged ESOP mismanagement in violation of the Employee Retirement Income Security Act. Wilmington Trust went to trial in November over allegations that it mishandled an $81 million company stock purchase for an ESOP connected to government security contractor Constellis Group Inc.
ISCO is a privately held company that provides customized piping solutions with more than 30 facilities in the U.S., Canada, Australia and Chile. The company adopted the ESOP in January 2012 and conducted the transaction by December 2012.
As the plan trustee, Wilmington Trust caused the plan to issue a note payable to ISCO in the amount of $98 million to purchase the company stock, the complaint said.
The ESOP paid for a control premium that it never got because the previous owner retained it, the participants alleged. Because the ESOP didn’t receive any discount for this lack of control, the participants alleged that the plan overpaid for the stock.
The participants seek to recover the difference between the price paid by the ESOP and the actual value of ISCO shares at the time of the transaction—$59 million.
Wilmington Trust didn’t immediately reply to Bloomberg BNA’s request for comments.
The participants are represented by Bailey & Glasser LLP. In December, the law firm sued Bankers Trust Co. of South Dakota over a $37.5 million stock transaction and recently reached a $19.8 million settlement in an action related to Mona Vie Inc. stock. Bailey also represents participants in an action against Reliance Trust Co. over a $100 million deal between Bradford Hammacher Group Inc. and its ESOP.
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Text of the complaint is at http://www.bloomberglaw.com/public/document/Swain_et_al_v_Wilmington_Trust_NA_Docket_No_117cv00071_D_Del_Jan_.
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