ESOP

[Guest sooner1]

I work for a company with a 40% ESOP ownership. The current ESOP valuation was influenced by a trustee(CEO) to lower the value. The CEO felt the value was high and the firm doing the valuation lowered the price. It appears the valuation was improperly influenced because the audit firm had already issued a preliminary value and further conversations caused the value to be reduced. In all of the previous years, the value had never been reduced after the preliminary value was issued. BTW-the trustee is no ESOP expert and this appears to impact the independent requirement on the part of the audit firm.

Is this legal?

Thoughts PLEASE.

[GMK]

There are several possibilities here.

For example, the preliminary value may have been based on estimated financials, and the actual numbers in the audited financial statements showed less value.

There are also a number of approaches to valuing a company (estimated earnings, book value, etc.), and those used in the preliminary valuation may not be as appropriate as others for this particular company. While it is best to use a consistent method of valuation from year to year, the valuation assumptions and method need to be reviewed from time to time to determine if any revisions are appropriate to best reflect the nature of the business.

Doesn't answer your question (which depends on the nature of the CEO's "influence"), but a few thoughts.

[A Shot in the Dark]

Sooner:

Perhaps, something is amiss, but for the record, in all of the ESOPs that I work with the appraisal firm will render a "draft" or a preliminary value. The Trustee(s) review and often times that review will create a conversation with the appraisal firm. On several occassions this process has created a revised "final" appraisal.

As GMK has noted there are several components that comprise an appraisal.

I would not jump to the conclusion that something is wrong. The fact that this has not happened in the past, does not mean anything.