AIT Laboratories will pay $3.47 million to restore alleged losses to the AIT Laboratories employee stock ownership plan, under an agreement with the Department of Labor approved Thursday in U.S. District Court in Indianapolis. Combined with two previous settlements, the total monetary relief to ESOP participants is $7.1 million.
AIT was also ordered to issue additional stock valued at $300,000 and to grant the plan a $5.9 million interest in some real estate properties.
AIT Holding Company Inc., Indianapolis, is the parent company of the American Institute of Toxicology Inc. and the ESOP's administrator and sponsor. As of Dec. 31, 2014, the ESOP plan had 218 participants. The asset size of the ESOP could not be learned by press time.
The ESOP was established in 2009 when 100% of AIT was sold to employees for $90 million in stock. In August 2014, the DOL sued the plan trustee, PBI Bank Inc., and former CEO Michael Evans, who owned 88% of the company, for causing the ESOP to “vastly overpay” for the company stock, according to court documents. By comparison, the court documents included tax filings that showed the stock valuation was much lower — $5.2 million — in 2008.
DOL officials also faulted PBI Bank for accepting the higher valuation because the stock purchase did not grant a controlling interest in AIT, but instead required the ESOP to vote its shares with candidates chosen by Mr. Evans, whose control of AIT Holding “was not simply a formality,” the lawsuit said. According to the Labor Department, after Mr. Evans profited from selling his shares, he used his control of the board to take back ownership of AIT Holdings from the ESOP, which now only owns 10%. Mr. Evans was also ordered to forgive part of $2.5 million in loans to AIT held by the plan, and to share a portion of future stock proceeds with the plan.
PBI, a subsidiary of Porter Bancorp based in Louisville, Ky., agreed to be permanently barred from serving as a fiduciary.
The lawsuit began with an investigation by the Employee Benefits Security Administration's Cincinnati regional office. “Too often, we see purchase price manipulation and other schemes that benefit corporate leadership at the expense of employees,” Assistant Secretary of Labor Phyllis Borzi said in a statement.
Guna Kirhnere Rogers, AIT’s corporate counsel and executive director of corporate services, said in an e-mail that while it was not a party to the lawsuit, the company and its ESOP plan are beneficiaries of the settlement. “The global settlement of actions arising from the creation of the AIT Employee Stock Ownership Plan in 2009 removes an ambiguity that has surrounded AIT Laboratories since 2013. The settlement benefits the employees of AIT Laboratories and will permit AIT Laboratories to focus on its core business.”