Wilmington Trust to Pay $80 Million to Settle DOL Investigations

The DOL alleged Wilmington Trust caused losses to ESOPs when it authorized them to pay more than fair market value for privately held employer stock.

The Secretary of Labor has reached an agreement with Wilmington Trust requiring it to pay a combined $80 million to 21 employee stock ownership plans (ESOPs) for which it served as trustee and $8 million to the government.

Wilmington Trust has also agreed to reimburse sponsors of the ESOPs for legal costs and expenses advanced in connection with the Department of Labor (DOL)’s investigations and litigation. The Delaware-based bank and trust company agreed to settle claims without admitting or denying any allegations.

The DOL says investigations by its Employee Benefits Security Administration (EBSA) found that Wilmington Trust caused losses to the ESOPs when it authorized them to pay more than fair market value for privately held employer stock, a violation of the Employee Retirement Income Security Act (ERISA).

The agreement resolves three lawsuits brought by the Secretary and 18 investigations by the EBSA. The Solicitor of Labor’s Plan Benefits Security Division and Regional Solicitor’s Office in Chicago litigated the three lawsuits involving the ESOPs sponsored by Graphite Sales Inc., HCMC Legal Inc. and Stargate Apparel Inc.

The investigations resolved by the agreement also involve the ESOPs sponsored by the following companies:

  • A.H. Schreiber Co.
  • Axia Consulting
  • Best Restaurant Equipment and Design
  • Cohen Ventures
  • Consolidated Bus Transit
  • Cost Containment Group
  • Evy of California
  • FST Logistics
  • Henny Penny Corp.
  • Life’s Abundance
  • Mapsys
  • Paramount Marketing Consultants
  • Ram 1971
  • The Retina Institute
  • Sterling Staffing
  • Trius
  • The Vertex Companies
  • West-Camp Press

The agreement is expected to result in payments to approximately 5,000 participants in those plans.

In a statement, Wilmington Trust said: “We are pleased to resolve all claims in these cases and avoid what could have been a protracted and expensive legal proceeding. While we deny all allegations with respect to these claims, we feel that this settlement is the best way for all parties to move forward. As always, we believe we have acted in accordance with all applicable laws, industry best practices and will continue to carry out our legacy and commitment to quality client services.”

The firm adds, “ESOP trustees work with accredited valuation professionals, lawyers and other experts in an attempt to purchase closely held companies for fair market value. Valuing unique, closely-held businesses is a complex process. ESOP appraisers follow longstanding methods set forth under the Standards of Professional Appraisal Practice. DOL has not issued any definitive guidance to help ESOP trustees or issued regulations relating to company valuations or the manner in which trustees approach stock purchases.”

Wilmington Trust points to a 2018 letter in which members of Congress accused the DOL of “regulation through litigation” and asked that clear guidance regarding valuation and other important issues be developed.