A DoL news release said the lawsuit alleges that trustee Steven D. Westra caused the ESOP to purchase 40,000 shares of non-voting convertible preferred company stock for $4 million on the basis of valuation reports and fairness opinions he knew or should have known were flawed. The stock was purchased with assets transferred from another retirement plan sponsored by the company.
On July 9, 2005, the company ceased operations and preferred stock purchased by the ESOP 21 months earlier became worthless, according to the news release.
“This defendant diverted retirement assets to subsidize corporate activities, thereby jeopardizing the future retirement income of their workers,” said Phyllis C. Borzi, assistant secretary of the Labor Department’s Employee Benefits Security Administration (EBSA), in the release.
The DoL has asked the court to order the trustees of the plan to restore all losses owed to the ESOP as a result of Westra’s fiduciary breaches and to correct any transactions prohibited by law. The department also seeks to bar the defendants from serving as fiduciaries to any ERISA-covered employee benefit plan.