DOL Settles with People Care Holdings over Valuation Issues
Executive Director
The former owners of People Care Holdings Inc. have agreed to pay $10 million to settle a lawsuit brought by the Department of Labor over allegations that the ESOP overpaid for the shares when it bought it from the former owners. People Care is a 4,600-employee home health care company in New York. The settlement included a $900,000 civil penalty.
The DOL alleged that the valuation was based on "unrealistically optimistic projections of People Care's future earnings and profitability, even after People Care lost a key municipal contract." The company had used a well-known independent ESOP trustee as well as a respected team of ESOP advisors. It denied any wrongdoing.
The DOL also alleged at the end of its investigation that the stock purchase agreement's indemnification provision was invalid because it required the ESOP, as the owner of the company, to pay any costs incurred by the former owners for an investigation or litigation. The defendants argued the indemnification was valid.