As the lawsuit against the U.S. Sugar ESOP proceeds in U.S. District Court for the Southern District of Florida, it continues to fascinate. Today, the International Herald Tribune is reporting that the company has announced employees owning shares through the ESOP will not be permitted to attend the annual shareholders meeting. Such an announcement is just one twist in this ESOP saga worthy of Gone with the Wind.
According to the amended complaint filed with the district court on May 4, 2008, the ESOP was created when U.S. Sugar went from a publicly traded company to a privately traded company in the 1980s. The employees, through the ESOP, became the largest shareholder in U.S. Sugar, holding approximately 35% of the shares. As a privately traded company, there is no market for the shares other than the provision in the ESOP which provides that U.S. Sugar will buy a participant’s shares in the ESOP when they retire, and the shares are then retired. The DOL addressed an issue the U.S. Sugar ESOP was having with OBRA in Advisory Opinion 97-06a, which unfortunately does not provide much detail on how U.S. Sugar morphed its two defined benefit plans into the U.S. Sugar ESOP.
The lawsuit includes allegations that U.S. Sugar is paying retirees less than fair market value for the shares, that the ESOP has no representation on the U.S. Sugar Board of Directors despite being the largest shareholder, and that there are various conflict of interest and fiduciary issues with the ESOP. As this lawsuit works it way through the court system, I expect it will redefine ERISA case law as it relates to ESOPs.
[tags]Pension Protection Act, ppa, ESOP, U.S. Sugar, Advisory Opinion 97-06a, ERISA[/tags]
