The U.S. Department of Labor has reached a settlement agreement with the fiduciaries of an Auburn, Maine, employee stock ownership plan to recover $6.3 million for the plan’s participants and resolve alleged violations of the Employee Retirement Income Security Act.
The agreement follows a lawsuit filed by the department against Maine Oxy-Acetylene Supply Co., company president and CEO Daniel Guerin, company director Bryan Gentry and the ESOP’s trustee, Carl Paine, in 2020, that alleged they breached their fiduciary duties by causing and permitting the company to buy back the ESOP shares for less than fair market value when the plan was terminated in 2013. In April 2022, the department’s suit was consolidated with a 2019 class action brought by ESOP participants.
The allegations are the result of investigation by the department’s Employee Benefits Security Administration.
The department alleged Guerin and Gentry purchased 51 percent of the company in September 2012 and concealed the price from the ESOP trustee and participants through a nondisclosure agreement with the ESOP’s annual valuation appraiser. By failing to appropriately consider that transaction, along with other flaws in the appraisal, the company, Guerin, Gentry and Paine caused the Maine Oxy plan’s shares to be valued at approximately $135, which was 20 percent of the share price of $655 paid by Guerin and Gentry just seven months earlier.
“Fiduciaries must act solely for the benefit of the plan participants, not themselves. Our investigation alleges that Maine Oxy and Daniel Guerin imposed a non-disclosure agreement on a valuation company to hide relevant information about the value of the employee stock purchase plan from the trustee,” said Employee Benefits Security Administration Regional Director Carol Hamilton in Boston. “These actions shortchanged the plan participants and violated the Employee Retirement Income Security Act.”
To resolve the matter, the department, the class action plaintiffs, and the company, Guerin, Gentry and Paine, then engaged in mediation and reached a settlement that the U.S. District Court for the District of Maine approved. In addition to the financial settlement with the plan’s participants, Guerin, Gentry and Paine also agreed to pay a civil money penalty of $630,000 and permanently refrain from acting in a fiduciary capacity with any ERISA-covered benefit plan. The department previously reached agreement with the valuation company and secured disgorgement of all fees paid for the flawed valuation.
“The outcome of this case sends a clear message to all employee stock ownership plan sponsors, fiduciaries, lawyers, lobbying groups and the public that the U.S. Department of Labor will not tolerate financial gamesmanship in ESOP valuations. Fiduciaries who attempt to benefit or enrich themselves at the expense of plan participants will face active litigation and costly consequences for their behavior,” said Regional Solicitor of Labor Maia Fisher in Boston.
Maine Oxy-Acetylene Supply Co. is a leading distributor of industrial, medical and specialty gasses as well as welding and cutting equipment, supplies and accessories throughout New England. The ESOP was established in 2004.
Employers and other plan sponsors, as well as workers and retirees can reach EBSA toll-free at 866-444-3272 for help with problems related to private sector retirement and health plans. Learn more about EBSA.
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