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The Employee Ownership Update

Loren Rodgers

August 1, 2018

(Loren Rodgers)

DOL and ASA File Briefs in ESOP Valuation Case

On July 24, the U.S. Department of Labor (DOL) filed a friend-of-the-court brief in support of the plaintiffs in a suit against Wilmington Trust, the trustee of the ESOP at Constellis Group, Inc. The DOL's brief follows an earlier brief from the American Society of Appraisers (ASA). In the case, Brundle v. Wilmington Trust, the district court for Eastern Virginia ruled that Wilmington Trust was liable for an alleged $30 million overpayment by the ESOP for company shares in 2013. The case is now on appeal in the Fourth Circuit.

The DOL argued that Wilmington gave "uncritical deference" to the appraiser's opinion, violating its obligation to ensure the valuation was at fair market value. The DOL also argued that Wilmington was wrong to pay for control, despite the plan receiving 100% of company shares, because the ESOP trust had only one seat on the five-person board and did not have control in fact.

In its brief, the ASA addressed three issues: "(1) the Court's failure to apply the proper standard of review to the ESOP fiduciary's determination of adequate consideration, (2) the numerous flaws in the Court's damages assessment resulting from the adoption of flawed and incoherent appraisal analyses, and (3) clarification of the role independent appraisers fill in advising ESOP fiduciaries as to the proper valuation of company stock held by an ESOP."

SEC Increases Limit on Rule 701 Exemption

Effective July 23, the SEC adopted new rules (PDF) to increase the amount companies can offer in stock to employees without meeting reporting requirements applicable to public companies from $5 million to $10 million. The change is pursuant to a section in the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law earlier this year.

UK Report Urges Pro-Employee Ownership Policies

Following an extensive data-collection process, the UK's Employee Ownership Association released a report titled The Ownership Dividend, which found that employee ownership benefits employees, individual businesses, and the economy as a whole. The report notes that employee-owned businesses currently represent 4% of the UK economy and the sector is growing at 10% annually. It also makes recommendations for the government, business associations, and financial institutions.

Sierra Aluminum Sold to Samuel

Sierra Aluminum, a formerly ESOP-owned company that was involved in the litigation that led to the first fiduciary process agreement between the Department of Labor and an ESOP fiduciary, announced on July 12 that it had been acquired by Samuel, Son & Co, a family-owned network of related metal businesses.

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