EBSA News Release: [06/08/2011]
Contact Name: Michael Trupo or Jason Surbey
Phone Number: (202) 693-6588 or x4668
Release Number: 11-0793-NAT
US Labor Department obtains $10.45 million in restitution for participants of DirecTECH Holding retirement plan
Defendants also to pay more than $1,045,000 in civil penalties
WASHINGTON The U.S. Department of Labor has obtained six consent judgments requiring payment of $10,454,545 in restitution to the DirecTECH Holding Co. Inc. Employee Stock Ownership Plan and $1,045,454 in civil penalties to the federal government. These judgments resolve a single lawsuit filed by the department. The plan covered 5,799 participants employed by businesses in Kentucky, Michigan and Louisiana.
"These settlements ensure that this plan's participants, or their beneficiaries, will be able to receive the benefits that are rightfully theirs," said Secretary of Labor Hilda L. Solis. "My department is committed to protecting workers to ensure they get to keep what they earn, including the benefits to which they are entitled."
"On the surface, the defendants appeared to be engaged in legitimate, albeit complex, transactions. The reality, however, was quite different. The defendants used the transactions to advance their own financial interests at the expense of the participants who depended on the plan for a secure retirement," added Phyllis C. Borzi, assistant labor secretary for employee benefits security. "The defendants had a duty to protect the stock ownership plan for everyone in the company, but instead were like the proverbial fox guarding the hen house."
Settling defendants include J. Basil Mattingly, Bas Mattingly Master LLC, the J. Basil Mattingly Family Trust, Henry E. Block, the Building Blocks Family Trust LLC, Bernard J. Schafer, the Bernard J. Schafer Trust LLC, Woody Bilyeu, Mary Bilyeu, Patrick Brian Shelton, David N. Wallingford and Thomas Beaudreau. In addition to paying restitution and civil penalties, the settling defendants are barred for 10 years from serving in a fiduciary capacity to most employee benefit plans governed by the Employee Retirement Income Security Act and permanently barred from service as fiduciaries to ERISA-covered plans that hold qualifying employer securities. In their capacity as officers or as members of the board of directors of a company, these individuals may carry out only settlor functions to most ERISA-covered plans.
The department sued the trustees of pension plans maintained by the company and its former subsidiaries, DirecTECH Inc., Michigan Microtech Inc., JBM Inc. and DirecTECH Southwest Inc.; members of the companies' boards of directors and parties who sold stock at allegedly inflated prices to the pension plans in violation of ERISA. The department's suit alleged that the defendants imprudently used plan assets to purchase company stock at inflated prices that caused millions of dollars of losses to the plans and their participants while enriching those defendants who sold stock to the plans.
The plans' fiduciaries, including trustees and members of the boards of directors of the companies that sponsored the plans, allegedly allowed the plans to pay excessive prices for the stock, used flawed valuations for the stock transactions, failed to select a qualified appraiser for the stock transactions, and provided inaccurate and incomplete information to the appraiser and his firm. Litigation against remaining defendants is ongoing.
The judgments, entered in the U.S. District Court for the Eastern District of Kentucky at Covington, resulted from an investigation conducted by the Labor Department's Employee Benefits Security Administration Cincinnati Regional Office as part of the agency's national employee stock ownership plan enforcement project. The case was litigated by the department's Cleveland Regional Solicitor's Office and the Office of the Solicitor's Plan Benefits Security Division. Employers and workers can contact EBSA's Cincinnati office at 859-578-4680 or toll-free at 866-444-3272 for help with problems relating to private sector pension and health plans.
Solis v. Mattingly
Civil Action Number2-09-cv207