Purchase of Stock from disqualified person

[Guest EMozley]

Can a brokerage affiliated Trustee of an ESOP purchase stock from the broker/dealer's inventory where the only market in the stock is from the broker/dealer? Our thoughts were that a disqualified person under an ESOP can sell stock to the ESOP as long as the purchase is at fair market value. We normally only process agency trades for qualified plans purchasing company stock except in this case our inventory is the only source of stock.

Anyone have any thoughts?

[RLL]

Hi EMozley ---

ERISA section 408(e) provides an exemption from the prohibited transaction rules so long as the ESOP's purchase price is based on the prevailing "bid" price (not the higher "asked" price) for the stock and no commission is charged to the ESOP. It would be preferable if the purchase were approved by an independent financial adviser and/or an ESOP fiduciary that is independent of the broker/dealer.