Break from the Grind January 5, 2017

A Little Friday File Fun

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In Hanoi, Vietnam, a 54-year-old man complained of stomach pains and was given medicine for a stomach ulcer. When that didn’t help, an X-ray found the problem— surgical forceps inside his body had broken apart and become lodged in his stomach. According to national television VTV, the forceps had probably been left in his abdomen in 1998 when he had emergency surgery after a traffic accident. They have since been removed.

In Highlands County, Florida, a man sentenced to 10 years in prison for using a stolen identity to obtain more than $300 in products and services from Verizon Wireless is suing the company for not stopping him. The local ABC News station reports that on May 7, 2015, the man went to a Verizon store and used his ID to steal from an existing customer with the same first and last name, but a different middle name. The suit claims the Verizon customer should have realized the ID and information from the customer account did not match. The man says Verizon’s “negligence” caused a loss of “civil liberties and freedoms.” He is seeking $72 million in damages.

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In Mainhausen, Germany, a man returning home one morning from working a night shift found a brick wall in front of his door. The mortar on the bricks was dry enough that the man had to borrow an ax to smash through the wall in order to get to his front door, according to Hessenschau.de, a German website. Police believe the wall was built by pranksters, but said it is a crime, not a joke. They estimate damage caused by the wall builders to be around $523. Most of the damage was to the front door, its frame and the bell.

In Dormont, Pennsylvania, a couple went to an auto shop to get an oil change for the husband’s truck. The wife had to use the restroom and the next thing she knew, she was holding her newborn baby. The woman said she felt little pain or contractions. When she yelled for help, another customer, who happened to be a registered nurse, came to her aid. A 911 dispatcher told the husband how to tie off the umbilical cord and mom and baby were rushed to the hospital.

Great New Year’s resolution advice from a 4-year-old.

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The man in this modeling shoot has a little trouble with his pants.

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This dog eats a banana just like we do.

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Compliance January 5, 2017

DOL Sues ESOP Fiduciaries Over Share Sale

The lawsuit alleges the price at which shares of the ESOP were sold was artificially inflated.
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A new lawsuit filed by the Department of Labor (DOL) alleges the fiduciaries of an employee stock ownership plan (ESOP) established by a Vermont employer violated their fiduciary duties of loyalty and prudence.

The suit alleges that First Bankers Trust Services, Inc.’s 2011 purchase of the company on behalf of the ESOP from its two previous owners caused the plan participants to suffer sizable financial losses.

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Named in the suit are Sonnax Industries, Inc., a Bellows Falls supplier of automotive drivetrain products; Tommy Harmon, its president and chief executive officer; Frederick Fritz, a board member with substantial company control; and First Bankers, headquartered in Quincy, Illinois. Sonnax, Harmon and Fritz hired First Bankers in 2010 as an independent fiduciary to advise the ESOP on whether, and at what price, to purchase shares of Sonnax from Harmon and Fritz. All defendants are fiduciaries of and parties in interest to the ESOP, according to the DOL.

Background included in the complaint show that early in 2011, the company purchased all of Harmon’s and Fritz’s stock shares for $48.8 million and issued new shares simultaneously which were sold to the ESOP for $10 million. The department’s Employee Benefits Security Administration investigated and found that First Bankers’ valuation that justified the sales “was flawed and its representation of the ESOP during negotiations deficient, resulting in a significant inflation of the purchase price.”

In its suit, the department alleges that the defendants violated ERISA’s prohibited transaction and fiduciary duty provisions. It further alleges First Bankers failed to protect the ESOP in connection with the plan’s purchase of Sonnax stock from Harmon and Fritz; willfully relied on a flawed valuation of the stock; did not prudently investigate the transaction’s merits; and purchased highly leveraged Sonnax stock for far more than fair market value, with the aid and knowledge of Sonnax, Harmon and Fritz.

DOL suggests Sonnax, Harmon and Fritz knew that First Bankers’ work was flawed yet failed to ensure that First Bankers fulfilled its fiduciary duties. They also failed to prevent the ESOP’s purchase at what they knew or should have known was an inflated price, and participated knowingly in First Bankers’ fiduciary breaches and otherwise failed to comply with their own fiduciary duties.

The lawsuit asks the court to order the defendants to restore to the ESOP all losses incurred as a result of their fiduciary breaches, prohibited transactions and other violations for which they are liable plus appropriate lost earnings; require them to disgorge any and all plan assets obtained by them as well as any and all profits earned by them from those assets; enjoin them from serving as fiduciaries, trustees or service providers for any ERISA-covered plan, and enjoin First Bankers Trust Services from receiving any benefits from its indemnification agreements with Sonnax that violate ERISA.

The full text of the DOL complaint is available for download here. 

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