DOL Files Suit against Calif. Bank

The U.S. Department of Labor (DOL) has filed a lawsuit against a California bank, alleging that nearly $1.4 million in employee stock ownership assets were mismanaged.

The suit, Perez v. California Pacific Bank, et al. (Civil Action File Number: CV13-03792-JST), was filed in the U.S. District Court, Northern District of California against San Francisco’s California Pacific Bank and four of its directors. The complaint alleges that the bank, its CEO and three additional fiduciaries of the bank’s Employee Stock Ownership Plan (ESOP) mismanaged plan assets resulting in potential plan losses totaling approximately $1.4 million. The suit asks the court to require the fiduciaries to restore all losses they caused to the plan.

The DOL alleges that after terminating the ESOP in 2010, the fiduciaries violated the Employee Retirement Income Security Act (ERISA) by failing to liquidate and distribute plan assets in cash to plan participants as required. Because the bank is not a publicly traded company, participants were left with shares of the company’s stock they could not easily liquidate for cash, if at all.

Agency investigators determined that the participants would have received approximately $1.24 million if the plan’s 97,237 shares had been liquidated and distributed in cash at their assessed December 2009 value. The lawsuit also alleges that in 2011, $81,407 was improperly diverted to the bank, and in 2012, the fiduciaries improperly transferred nearly $70,000 in plan assets to the bank. And it is alleged that the bank also held plan assets in non-interest bearing accounts, making assets available for bank use without charge and without accruing interest on the funds for the benefit of the plan.

The complaint names California Pacific Bank CEO and board member Richard Chi, who served as the plan administrator and a plan trustee. Also named are board members and trustees Akila Chen, Kent Chen and William Mo. The suit asks the court to permanently remove all four as plan fiduciaries and to appoint an independent fiduciary with control over the plan and its assets. The independent fiduciary would administer the liquidation and termination of the plan.

The complaint also seeks to permanently enjoin the defendants from ever serving, directly or indirectly, as a fiduciary or service provider with respect to any employee benefit plan subject to ERISA, and to require them to disgorge to the plan any financial benefits they realized as a result of their violations.