The Department of Labor filed a lawsuit Thursday against California Pacific Bank and four of its directors for mismanaging the bank's employee stock ownership plan resulting in potential losses of $1.4 million.
The DOL alleges the fiduciaries violated ERISA by failing to liquidate and distribute plan assets to participants after the ESOP was terminated in 2010, said Jean Ackerman, director in the San Francisco office. The bank never implemented a plan to start liquidating the ESOP and is required to do so “within a reasonable time,” she added.
The suit, filed in U.S. District Court in San Francisco, asks the court to require the fiduciaries, which includes CEO and board member Richard Chi, to restore all losses.
DOL investigators determined participants would have received about $1.24 million if the shares were liquidated and distributed in cash at the December 2009 assessed value.
“Our concern is that (the stock) is worth less now,” Ms. Ackerman said in a telephone interview.
The lawsuit also alleges that about $81,000 in plan assets was improperly diverted to the bank in 2011 and nearly $70,000 was transferred to the bank in 2012. It also alleges the bank held plan assets in non-interest-bearing accounts, making the assets available for bank use without accruing interest for the benefit of the plan.
Ms. Ackerman said up to a 20% penalty of the settlement could be levied on the bank as well, per ERISA regulations.
Mr. Chi, who was also plan administrator, and three other board members and trustees are named in the suit, which asks the court to permanently remove all four as fiduciaries of the plan as well as never serving as a fiduciary to any plan subject to the Employee Retirement Income Security Act.
The DOL is asking the court to appoint an independent fiduciary to administer the liquidation and termination of the plan.
Officials from California Pacific Bank declined to comment.