U.S. Labor Department sues Kentucky, Michigan and Louisiana trustees, and others over plan overpayments to purchase company stock

Chicago – The U.S. Department of Labor has sued the trustees of the employee stock ownership plans and eligible individual account plans of DirecTECH Holding Co. Inc. and its former subsidiaries, DirecTECH Inc., Michigan Microtech Inc., JBM Inc. and DirecTECH Southwest Inc., the companies’ boards of directors and the parties who sold stock at inflated prices to the plans for alleged violations of the Employee Retirement Income Security Act (ERISA).

The lawsuit alleges that the defendants imprudently used the plans’ assets to purchase company stock in seven separate transactions at inflated prices that caused millions of dollars of losses to the plans and their participants while enriching those defendants who sold the stock to the plans.

“This legal action seeks to recover for workers and retirees retirement money that was entrusted to plan fiduciaries and others to manage for the plans,” said Secretary of Labor Hilda L. Solis. “The Labor Department wants to ensure that these individuals cannot engage in the blatant misuse of plan assets for personal gain in the future.”

According to the suit filed in federal district court in Covington, Kentucky, the board of directors and trustees to the plans violated ERISA by causing or allowing the plans to pay inflated prices to purchase company stock over the period of December 31, 2003, through September 8, 2006. The defendants are J. Basil Mattingly, Robert E. Eddy, Henry E. Block, David N. Wallingford, Patrick Brian Shelton, Bernard J. Schafer, Thomas Beaudreau, Woody Bilyeu, Mary Bilyeu, entities affiliated with the sellers and the company that sponsored the plans.

In June 2005, the original eight plans merged into the DirecTECH Holding Co. plans and DirecTECH Holding Co. Inc. became the plan sponsor. From December 31, 2003, through September 8, 2006, the plans purchased company stock at a total price in excess of $60 million, which had a reported value of approximately $18 million as of December 31, 2007. The plans collectively covered as many as 5,799 participants and suffered millions of dollars in losses as a result of the violations.

The plans’ fiduciaries, who were 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.

The suit seeks a court order requiring the fiduciaries to restore to the plans all losses with interest and requiring the fiduciary defendants to forfeit their interests in plan accounts to offset money owed to the plans. The suit also asks that the defendants who sold stock to the plans return all profits they received.

Finally, the suit seeks to bar all the defendants from serving as fiduciaries and service providers to any plan governed by ERISA in the future.

This case, which resulted from an investigation conducted by the Cincinnati Regional Office of the Employee Benefits Security Administration (EBSA), is part of the agency’s national employee stock ownership plan enforcement project. In fiscal year 2009, the Labor Department achieved monetary results of $1.3 billion in pension, 401(k), health and other benefits for millions of American workers and their families. 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 Number 2-09-cv207