The Labor Department filed a lawsuit against PBI Bank Inc., the trustee of the Miller's Health Systems Inc. employee stock ownership plan.
The lawsuit, filed Dec. 20 in federal district court in South Bend, Ind., alleges that that PBI Bank, based in Louisville, Ky., authorized a 2007 company stock purchase in excess of the stock's fair-market value and charged the ESOP an excessive 12% interest rate to finance it.
Miller's Health, based in Warsaw, Ind., manages long-term care and assisted-living facilities. The civil lawsuit argues that PBI breached its fiduciary duties in the design of the transaction, which was based on a “flawed and unreliable” valuation that did not benefit participants and did not promote employee ownership in the plan, which had assets of $12.8 million as of Sept. 30, 2012, the latest available data.
The Labor Department is seeking to have PBI Bank restore all the losses and transaction expenses plus interest, and to be barred as a fiduciary for any future plans.
According to the lawsuit, the $40 million stock purchase was for the ESOP to receive 100% of the outstanding shares, even though Miller's Health management had reserved 20% of the stock through various option agreements for itself, and company executives along with four Miller family members retained voting control of the board even though they had sold their shares in the company.
“As a result of these errors and more, PBI Bank caused the ESOP to vastly overpay for the stock and to unnecessarily give up future profits and control of the companies,” the lawsuit alleges.
Calls to PBI Bank were not returned.