DOL Resolves Valuation Issues with ESOP Transaction

In 2006, GreatBanc, as trustee to the Sierra Aluminum Co. Employee Stock Ownership Plan (ESOP), allegedly allowed the plan to purchase stock from Sierra Aluminum’s co-founders and top executives for more than fair market value.

GreatBanc and its insurers will make $4,772,727.27 in payments to the ESOP and pay $477,272.73 in civil penalties. The company will also put safeguards in place whenever the company is a trustee or fiduciary to an ESOP that is engaging in transactions involving the purchase or sale of employer securities that are not publicly traded.

These safeguards include requirements for: the selection of a valuation adviser and the oversight of the adviser; the analysis required as part of the fiduciary review process; and the required documentation of the valuation analysis.

The settlement resolves a 2012 lawsuit, filed by the DOL, that alleged GreatBanc failed to adequately inquire into an appraisal that presented unrealistic and aggressively optimistic projections of Sierra Aluminum’s future earnings and profitability. GreatBanc allegedly failed to investigate the credibility of the assumptions, factual bases and adjustments to financial statements that went into the appraisal. The suit also alleged that GreatBanc asked for a revised valuation opinion in order to reconcile the ESOP’s higher purchase price with the lower fair market value of the company stock.

Sierra Aluminum is based in Riverside, California. The company produces extruded aluminum products for use in various industries, such as construction and transportation. The ESOP had 385 participants as of the end of December 2012, according to the DOL.