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ESOP ruled company was wrong by DOJ.. any recourse?


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Our Company became an ESOP several years ago. A DOJ review found that the company overvalued the shares sold to the ESOP.

To satisfy the DOJ the partners of the company, who sold the shares to the ESOPS ,purchased back 80% of the shares from the ESOP. This made the DOJ satisfied.

So the employees now only own 20% of the company. Something that has never been disclosed to the employees since it occurred several years ago. All our company documentation still lists us as employee owned. Though not partially employee owned

Now the owners of the majority are marketing the company to third party buyers.

My question is about what is owed to the employee stock owners as far as disclosure in the original stock purchase being nullified as well as when or if we must be notified that the company is being sold.

We have an ESOP representative on the board. We have never met him. He has never conveyed anything to us. I was told it is his job to represent our interests. It seems informing us of all these sales and legal matter WOULD be in the employee interests?

All of this information was told to be by a very close friend in accounting. The company has never acknowledged it to any of us.

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To you, the ESOP is a retirement plan that has its assets invested in the stock of the company that employs you. You hope that the value of your account goes up because the company is successful and and the value of the stock goes up. A sale of the company may or may not put an end to the ESOP, and with favorable economic consequences if you are lucky. You get statements about the value of your account, which should also let you know what the value of the stock is. If you think you have a more exalted position in the life of the company because of the ESOP, forget it unless you enjoy the agitation and artificial intrigue.

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Not exalted lol....not even...Was just curious as to legally if our sales were sold back to the previous owners if that had to be disclosed to plan participants as technically they are our shares.

There are rules they must follow lol. I was just curious if their failure to disclose was one of those rules.

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I doubt that there is a requirement to provide a narrative account of the events, although it would have been a good practice. The failure reveals the attitude that the "powers that be" have about the ESOP and is the basis for my conclusion that the participants have been minimized -- so much for the ideal of creating an ownership culture, the Holy Grail of ESOP believers. The transactions should have shown up in some way, if only to show an adjustment to share price. Evidence might be found in the ESOP's Form 5500 (which should be made available to you on request, but it is not exciting reading) or in comparison of participant statements from year to year.

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I know very little about ESOPs but I cannot agree with QDROphile.

1. I would need to find out the terms of the settlement agreement with DOJ, whether they were complied with, where the repurchase money went and verify its correctness.

2. I would get a copy of the rules. Probably DOJ DoL might help.

3. Find out from DOJ DoL if they have any guidance, Administrative Interpretations etc, published or other regarding operation of the ESOP and the Fiduciary or other duties of this Representaive.

4. Get a copy of the ESOP Plan Document and those of anything related.

5. See if there is a provision for getting legal advice. If there is, GET IT ASAP.

6. Follow the legal advice.

7. If there is no legal advice available, set up a meeting between employees and this Representative and air your concerns.

But, before you do anything, make sure that you are not alone. It would be dangerous to be the lone voice. Also remember that just because someone says that they stand with you does not mean that they really do. You might be the lone voice which means that you could be labeled as a troublemaker. Make sure that what you do is worth the risk.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Perfect advice if you love agitation and intrigue, except that you should substitute Departement of Labor for DOJ. It is possible that the Departement of Justice was involved, but the DOJ comes in at the request of the DOL to add some enforcement muscle. If you think something is amiss generally or with the execution of the remedy, your entry point is the DOL. And if you take the bet, let us know the payoff.

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Good point QDRO. I should have pointed to BOTH DoL and DoJ.

DoJ should be contacted for Item 1 and DoL for the others.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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