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Compliance June 10, 2015
DOL Sues Firm Over Company Stock Purchases
The Labor Department filed suit against a California-based manufacturer to recover millions of dollars for ESOP plan participants.
Reported by John Manganaro
The U.S. Department of Labor (DOL) is suing Gruber Systems Inc. and its CEO to recover more than $2.6 million in losses suffered within the company’s employee stock ownership plan (ESOP).
The DOL alleges the manufacturer knowingly bought over-valued company stock within the ESOP—and that the firm’s CEO, John Hoskinson, drove money into the ESOP not for the exclusive economic benefit of plan participants, but instead to support the stock price of the financially distressed company.
The suit specifically alleges that the company willing caused ESOP participants to lose money when the plan purchased additional company stock for significantly more than fair market value in two transactions, totaling $2.6 million. The suit alleges that this money should have been set aside to fund the retirement accounts of Gruber retirees, but was instead steered into questionable stock purchases to fund the financially distressed company.
Based in Valencia, California, Gruber provides molds, automation equipment and supplies for the cast polymer and other composite-related industries.
Announcing the charges against Gruber, Crisanta Johnson, Los Angeles regional director of the DOL’s Employee Benefits Security Administration, noted that plan funds “must be invested in the interest of workers and retirees, not used to prop up a struggling firm.” She said it is becoming more common to see ESOP funds “used illegally by company owners and management to bolster companies. Doing so threatens the financial security of workers and retirees.”
The suit was filed in a California District Court and seeks a reversal of the $2.6 million in prohibited stock transactions, along with the restoration of any related plan losses, including lost opportunity costs. DOL is also seeking a court order requiring the defendants to account for and restore losses to plan participants.
The department is also seeking permanent enjoinment of Hoskinson from serving as a fiduciary or service provider to any plan covered by the Employee Retirement Income Security Act and his removal from any positions he holds as a plan fiduciary. The suit requests the appointment of an independent fiduciary to distribute the plan’s assets to participants and beneficiaries and to terminate the plan; an action for which Hoskinson and the company must pay.