October 02, 2012
--- The Department
of Labor (DOL) filed a lawsuit against GreatBanc Trust Co. and Sierra Aluminum
Co., alleging that stock overvaluations led to losses for Employee Stock
Ownership Plan (ESOP) participants. ---
Based on an investigation by the Employee Benefits Security
Administration (EBSA), the suit alleges that GreatBanc breached its fiduciary
duties to the Sierra Aluminum ESOP when it allowed the plan to pay more than
fair market value for employer stock in June 2006.
Sierra Aluminum, the ESOP’s sponsor, was named a defendant
for entering into an indemnification agreement with GreatBanc that violates the
Employee Retirement Income Security Act (ERISA). The plan currently has 322
EBSA claims that GreatBanc failed to adequately inquire into
an appraiser’s report 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 the appraiser relied on in
preparing its report. The suit also alleges that GreatBanc asked the appraiser
to revise its valuation opinion in order to reconcile the ESOP’s higher
purchase price with the lower fair market value of the company stock.
Sierra Aluminum’s indemnification agreement with GreatBanc
violated ERISA to the extent that it would permit them to pay GreatBanc’s
losses, costs, expenses and damages unless and until a court enters an
unappealable judgment that GreatBanc did not violate ERISA.
The complaint seeks to restore losses plus interest to the
plan and to enjoin Sierra Aluminum from indemnifying GreatBanc.