Plan Officials Of Ky.-Based Radac Pension Plan Sued For Undervalued Plan Stock

Archived News Release — Caution: Information may be out of date.

Plan officials of the Radac Corp. Employee Stock Ownership Plan (ESOP) of Dayton, Ky., were sued by the U. S. Department of Labor for allegedly distributing plan assets to participants other than themselves which were based on an undervaluation of Radac stock held by the plan.

Besides Radac Corp., individual defendants are Richard L. Morris — the president of the company — and corporate officers H. Thomas Smith, James E. Cornwell and Joseph C. VonLehman, Jr.. Smith, Cornwell and VonLehman were members of the ESOP’s Advisory Committee. Morris served as the ESOP’s plan administrator.

According to the lawsuit, the ESOP officials violated their duties under the Employee Retirement Income Security Act (ERISA) when they:

• liquidated the plan’s stock held and distributed cash to 129 participants other than themselves based on an inaccurate valuation conducted by Business Valuations, Inc.;
• retained their stock holdings in lieu of a cash distribution and finalized a buy/sell agreement just 9 days later which resulted in a higher valuation of company stock held by them;
• failed to take steps or follow procedures to determine the fair market value of the stock held by the ESOP.

These defendants elected to retain company stock rather than take a cash distribution from the ESOP. Nine days after making a distributions to all other participants, the defendants received a buy/sell agreement valuing the shares of company stock at a much higher amount than the $32.26 share price distributed to participants.

The Labor Department’s lawsuit also alleges that the defendants should have known that the valuation was inaccurate because of the increased growth by the company and the exclusion of $2 million in assets received on the sale of an industrial revenue bond from the earlier valuation.

The lawsuit seeks a court order to require that the defendants restore all losses with interest and correct any transactions prohibited by ERISA. The department also asks the court to permanently bar the defendants from serving in positions of trust to any plan governed by federal pension law.

Joseph Menez, Cincinnati Regional Director of the Pension and Welfare Benefits Administration, said, “This case reaffirms our commitment to protect workers and their benefits from abuse wherever and whenever it occurs. Workers also can help us protect plan benefits by contacting our office at 606-578-4680 about any suspected abuse of their pension, health or other benefit plans.”

The lawsuit was filed on March 23 in federal district court in Covington, Ky. The case was investigated by the Cincinnati Regional Office of PWBA into alleged violations of ERISA.

(Herman v. Radac Corp.)
Civil Action No. 2000-52

U.S. Department of Labor news releases are accessible on the Internet. The information in this news release will be made available in alternate format upon request (large print, Braille, audio tape or disc) from the Central Office for Assistive Services and Technology. Please specify which news release when placing your request. Call 202.693.7773 or TTY 202.693.7775.

Archived News Release — Caution: Information may be out of date.