DOL Reaches Another Settlement Agreement with an ESOP Trustee

On May 4, the Department of Labor (DOL) reached a settlement with the insurers for Cactus Feeders, certain of its present and former directors, officers, and members of its ESOP committee, and Lubbock National Bank (the ESOP trustee), who with no admission of liability agreed to pay $5.4 million into the Cactus Feeders ESOP to settle a lawsuit initiated by the DOL alleging that the appraisal for a transaction (that increased the ESOP's ownership of Cactus Feeders from 30% to 100%) did not adequately adjust for the alleged dilutive impact of warrants and stock options, did not apply a discount for lack of marketability, and did not include a discount for lack of control (Acosta v. Cactus Feeders, Inc., et al., 2:16-cv-00049-J-BR [N.D. Tex. May 4, 2018]). As part of the settlement, Lubbock National Bank agreed to adopt the same process agreement that the DOL and GreatBanc Trust Company entered into in 2014. The Lubbock National Bank agreement does not include some provisions that were part of several agreements reached after the GreatBanc agreement, especially relating to the selection and oversight of the appraisal firm and reviewing alternative financing mechanisms.

Analysis of the settlement is available from law firms in the field, for example this analysis from Holland & Knight. The GreatBanc settlement is analyzed and explained in the NCEO issue brief The DOL Fiduciary Process Agreement for ESOP Transactions.

The DOL also reached a settlement in Secretary vs. First Bankers Trust Services, Inc. et al., in which the selling shareholders at Sonnax Industries, Inc., who were also corporate officers and board members, will pay $2 million to the ESOP and $200,000 in civil penalties to the DOL, while independent fiduciary First Bankers Trust Services will pay $225,000 to the ESOP and $25,000 in civil penalties to the DOL.