Suspicious about BIG loss in value

[Guest Relsom]

I'm an employee of a privately held national company that has an ESOP. Since I've been with the company (1987) the stock per share value has remained an even $100.00. On this years statement the value has been cut over 80%. I nearly passed out when I saw this. We are not a Dot-com and have been around over a hundred years. How can an employee such as myself verify that the company isn't playing with the numbers in order to balance their books and/or what recourse do I have. Employees do not have voting rights and to my knowledge there is no employee at large. Am I screwed? Thanks

[Erik Read]

A few things may have happened - your company may have actually had the stock appraised rather than carring it at "book" value for the last several years. They may have also had something happen at the corporate level that as an employee you didn't see, but as a share holder you are seeing the after math.

Recourse - ask for a copy of the "annual report" you may be charged for "coping fees" to recieve it, you can also request copies of the annual filing form from either your employer or the IRS. This will show you historical prices.

I would tend to believe something happened and the employer had the stock appraised at fair market value, causing the large swing in price, if they've been using book in the past. There may not be anything you can do.

Good Luck

[Greg Judd]

I'm with Erik re: probable causes for the change in value, based on your post.

That said, it's a matter of "there they go again...". Employers blithely & frequently 'forget' that these are employee benefit plans, & that regardless the dollar impact of any changes that take place, how they communicate change imbues - or obliterates - value as well.

[Guest Relsom]

Thanks for your responses. Even though I participate in the 401K and have my own investments, there's a lot of fellow employees that were counting soley on the ESOP. The company hasn't contributed to the ESOP in the last several years and we all pretty much thought that they would leave it alone although the values were increasing by means of annual dividends. I have freinds who have left the company within the last five years and since the company can take five years to pay out after termination, they were affected by this as well. Sad thing is, all of us who have stuck it out all these years are paying the price for a decision made by a non-vested corporate hirarchy looking for their own payout via a sale of the company. Happy New Year!

[david rigby]

Raises an interesting point about whether past payouts were based on some ficticious "book value" (or whatever it was). A price of $100 that does not change for over 10 years sounds a lot like something that does not reflect market value.

[RLL]

Perhaps the ESOP owned preferred stock that was being valued at it's "face" amount, and company/ESOP officials mistakenly believed that preferred stock maintains a constant value. The $100 per share value sure sounds like preferred stock.

Or maybe the stock was preferred stock with a variable dividend rate which is adjusted periodically so as to maintain a constant value. In any event, it sounds like this company may now be having serious financial problems.

[Guest Relsom]

Right, these are preferred shares and I don't know the nature or source of the dividends. In general, who manages the ESOP, the company or an ESOP brokerage? I really don't know how that all works. I haven't been on this site much exept for this forum. Where can I go to find out how ESOPs operate and the laws that apply to them? Thanks for all your help.

[RLL]

Relsom ---

Getting yourself more education about ESOPs is a great idea! I strongly recommend that you visit both the National Center for Employee Ownership at http://www.nceo.org and The ESOP Association at http://www.esopassociation.org

[Guest Relsom]

Thanks! The NCEO is great. The way I read it, there should have been annual(at least)appraisals of fair market value and all transactions are to be based on that appraisal. I find it hard to believe that the value could have remained static all these years and then instantly plummet over 80%, regardless of the class of stock. All this leads to either a violation of the Trustee or previous appraisers in executing their responsibilities which, in turn creates a problem with past payouts and repurchasing of shares by dividends since those transactions were based on the static valuation rather than fair market value which I contend must have been different. I do indeed smell lawsuit here but also know that the Company is aware by now that they have stepped in a really big pile of it and need to come clean if they want the company run going into the new year. I hope for the best but expect the worst. Thanks Again

[Guest Relsom]

I thought I should post a follow up here partly to warn others that employers can do whatever they want with your benefits and partly to thank those who responded to this thread. As of Aug. 3, 2001, the company in question ceased operations and left all involved with nothing. I'm sure there are companies out there that truely look out for their people. It will be difficult to move on with the same kind of dedication to an employer, but I know I will. My apologies if this post seems inappropriate for this forum.

Thanks

[Greg Judd]

Grrrrr--sorry to hear this (angry to hear this).

You're right though; there are many employers who back their good intentions with real assets - they put their money where their mouth is. Here's hoping your next employer is among them!

[RLL]

Relsom ---

I'm very sorry to hear what happened to your company. But you should understand (and it should have been communicated to employees) that the purpose of an ESOP is to provide employees with beneficial stock ownership in the company. The value of benefits that employees derive from an ESOP is dependent on the success of the company.

One of the consequences of stock ownership is the possibility of that stock becoming worthless if the business fails. Employee-owners lose their stock values just as direct shareholders of the company lose theirs. Failure of a business does not mean that anyone did anything illegal or improper. Many businesses fail, for various reasons. It's too bad, but that's capitalism.

I certainly don't know what happened in your company or whether anything improper was done. But I do know that there are thousands of successful companies with ESOPs and very happy employee-owners.