Employee Retirement Income Security Act Breached: GreatBanc Trust Co. and Sierra Aluminum Co. in Litigation Brouhaha
The U.S. Department of Labor has filed a lawsuit against GreatBanc Trust Co. and Sierra Aluminum Co. in the U.S. District Court for the Central District of California, based on an investigation by the department’s Employee Benefits Security Administration. The suit alleges that GreatBanc violated the Employee Retirement Income Security Act by breaching its fiduciary duties to the Sierra Aluminum Employee Stock Ownership Plan when it allowed the plan to pay more than fair market value for employer stock in June 2006. The suit names Sierra Aluminum, the ESOP’s sponsor, as a defendant for entering into an indemnification agreement with GreatBanc that violates ERISA.
Speaking on the issue in Washington, Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi said, “Plan fiduciaries have an obligation to work solely in the interest of plan participants. When they fail to do so, the retirement security of workers is put in jeopardy, and we will take action to make plan participants whole.”
The suit alleges that GreatBanc failed to adequately inquire into an appraiser’s report that presented unrealistic and aggressively optimistic projections of Sierra Aluminum’s future earnings and profitability. GreatBanc allegedly failed to investigate the credibility of the assumptions, factual bases and adjustments to financial statements that the appraiser relied upon in preparing its report. The suit also alleges that GreatBanc asked the appraiser to revise its valuation opinion in order to reconcile the ESOP’s higher purchase price with the lower fair market value of the company stock.
The suit further alleges that Sierra Aluminum’s indemnification agreement with GreatBanc violated ERISA to the extent that it would permit Sierra Aluminum to pay GreatBanc’s losses, costs, expenses and damages unless and until a court enters an unappealable judgment that GreatBanc did not violate ERISA. The complaint seeks to restore losses plus interest to the plan and to enjoin Sierra Aluminum from indemnifying GreatBanc.
Sierra Aluminum Co.’s principal place of business is in Riverside, Calif. The company produces extruded aluminum products for use in various industries such as construction and transportation. GreatBanc Trust Co. is based in Lisle, Ill. The ESOP currently has 322 participants.
EBSA’s Los Angeles Regional Office conducted the investigation that resulted in the suit. The case is being litigated by the department’s Office of the Solicitor in Washington, D.C.
Workers in employer-sponsored health and retirement benefit plans, who feel that they have been denied a benefit inappropriately, or have questions about benefits laws, can contact a benefits adviser at http://www.askebsa.dol.gov or by calling 866-444-3272. Civil action number: EDCV12-1648 R (DTBx)