DoL Sues Trustees over Company Stock Purchases

The U.S. Department of Labor is suing the trustees and other fiduciaries of the employee stock ownership plans and eligible individual account plans of DirecTECH Holding Co. Inc. for allegedly using plan assets to purchase company stock at inflated prices.

The DoL lawsuit alleges the trustees of the plans of DirecTECH Holding Co. Inc. and its former subsidiaries (DirecTECH Inc., Michigan Microtech Inc., JBM Inc., and DirecTECH Southwest Inc.), as well as the companies’ boards of directors and the parties who sold stock at inflated prices to the plans in seven separate transactions, caused millions of dollars of losses to the plans and their participants.

The suit says the board of directors and trustees to the plans violated the Employee Retirement Income Security Act (ERISA) by causing or allowing the plans to pay inflated prices to purchase company stock over the period of December 31, 2003, through September 8, 2006. During the period, the plans purchased company stock at a total price in excess of $60 million, which had a reported value of approximately $18 million as of December 31, 2007.

The DoL also claims the plans’ fiduciaries used flawed valuations for the stock transactions, failed to select a qualified appraiser for the stock transactions, and provided inaccurate and incomplete information to the appraiser and his firm. 

The suit seeks a court order requiring the fiduciaries to restore to the plans all losses with interest and requiring the fiduciary defendants to forfeit their interests in plan accounts to offset money owed to the plans, and requiring the defendants who sold stock to the plans return all profits they received. The suit also seeks to bar all the defendants from serving as fiduciaries and service providers to any plan governed by ERISA in the future.

The plans, which in June 2005 were merged into the DirecTECH Holding Co. plan, collectively covered as many as 5,799 participants.

MMC Settles Stock-Drop Case

Lawyers for participants in Marsh & McLennan Co.'s (MMC) Stock Investment Plan have hammered out a $35-million settlement with the company of allegations it violated the Employee Retirement Income Security Act (ERISA) by continuing to offer company stock as a retirement investment when it was no longer prudent.

U.S. District Judge Colleen McMahon of the U.S. District Court for the Southern District of New York has given preliminary approval to the deal and has scheduled a hearing for January 29 to consider a final decision on the settlement of the class-action suit, according to court documents.  Class members were participants or beneficiaries of the Marsh & McLennan Companies, Inc. Stock Investment Plan between July 1, 2000, and January 31, 2005.

The settlement comes in a consolidated case covering a series of participant lawsuits alleging that company officials knew or should have known that the company was engaging in bid rigging and price fixing that artificially inflated the value of its stock. In January 2005, the company agreed to set up a $850-million fund to compensate its clients.

In seeking McMahon’s blessing, lawyers pointed out that the settlement avoids the necessity of litigating a complex financial case.

“The facts and circumstance surrounding the fraudulent business practices at the world’s largest insurance broker, underlying the breach of duty claims in the Complaint, are highly complex and undeniably would be greatly time consuming to litigate further to trial,” the lawyers argued, according to the summary of the settlement. “This Settlement conserves judicial resources and reduces the expense associated with the remaining expert discovery and briefing required to prepare Plaintiffs’ case against Defendants for trial.”

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