A federal court on Wednesday ordered that the former trustee of the Kurt Manufacturing Co. Inc. Employee Stock Ownership Plan restore the bulk of $9.4 million to the plan in a settlement with the Department of Labor.
The Labor Department's Employee Benefits Security Administration filed a lawsuit alleging Reliance Trust Co., the previous trustee of the ESOP plan, overpaid when it purchased the remaining shares of Kurt Manufacturing Co. Inc. stock for $39 million in October 2011.
The Kurt ESOP had $24.9 million in assets as of Oct. 31, 2020, according to its most recent Form 5500 filing.
A judgement issued by a U.S. District Court in St. Paul, Minn. ordered Reliance to restore $8.4 million to the plan to resolve the lawsuit originally filed in 2017. The court also ordered Reliance to pay an $840,909 penalty for violating the Employee Retirement Income Security Act.
Kurt board members and fiduciaries of the company's ESOP — Steven R. Carlsen, Paul A. Lillyblad and Kelli Watson — will restore $984,042 to the plan. As ESOP fiduciaries, the lawsuit alleged that the board members failed to monitor Reliance's determination of the stock's value and allowed the company to purchase it for more than its true value. The court also ordered the directors to pay a $215,957 penalty for violating ERISA.
The three Kurt board members agreed to not participate in the Kurt's stock appreciation rights plan; forgo their right as of July 1, 2021, to any future contributions from Kurt to the supplemental executive retirement plan and rescind agreements that provided termination severance payments of their contract salaries for two years. The court barred Mr. Lillyblad and Ms. Watson from serving as fiduciaries of the ESOP in the future and barred Mr. Carlsen from serving as a fiduciary to any ERISA-covered plans.
"This settlement restores employees' hard-earned retirement funds of the Kurt Manufacturing Co. Inc. Employee Stock Ownership Plan, and ensures executives responsible for the overpriced purchase of stock receive no future benefits from their decision," said Mark Underwood, EBSA acting regional director in Kansas City, Mo., in a news release. "Fiduciaries must always work in the best interest of the fund."
Representatives from Kurt and Reliance could not immediately be reached for comment.
In April, Kurt announced it had joined Certified Employee-Owned, a certification program for employee-owned companies. To become a member of Certified EO, companies must pass a certification process to demonstrate that their employees own at least 30% of the business (exclusive of company founders), access to ownership is open to every employee and the concentration of ownership is limited, according to a Kurt news release.
