US Labor Department sues trustee of defunct Maine company employee stock ownership plan to restore losses to the plan

BOSTON – The U.S. Department of Labor has sued Stephen Thomas, individually and as trustee of the defunct Gagne Precast Concrete Products Inc. Employee Stock Ownership Plan, for alleged violations of the Employee Retirement Income Security Act that cost the plan millions of dollars in losses. ERISA is the federal law that protects the assets and participants of private sector employee benefit plans.

Gagne Precast Concrete Products Inc. was located in Veazie, Maine, just outside of Bangor. The department filed its lawsuit against Thomas with the U.S. District Court for the Middle District of Pennsylvania since he now resides in York, Pa. The suit was filed following an investigation by the Labor Department’s Employee Benefits Security Administration.

The suit alleges that Thomas, who was an owner and manager of a private equity firm, ECG Equity Investors LLC, based in Washington, D.C., orchestrated a leveraged buyout of Gagne Concrete in February 2005. The buyout involved the creation of an employee stock ownership plan that, in turn, purchased 100 percent of the company’s common stock through a financing deal. Thomas, as trustee of the plan, violated his fiduciary duties by causing it to pay more than fair market value in purchasing shares of the company’s stock. Specifically, the suit alleges that Thomas approved the plan’s purchase of stock for approximately $3.9 million. To support this purchase price, he relied unreasonably on a valuation opinion that was based on stale and inaccurate data, unrealistic growth and risk assumptions, and other obvious flaws.

The suit further alleges that the stock purchase was a prohibited transaction because Thomas simultaneously represented both the plan and his private equity company, which received numerous benefits in the deal, including equity instruments that directly reduced the plan’s ownership interest in the company. Finally, Thomas misappropriated and diverted at least $1,142,889.99 in assets away from the company without a legitimate purpose. He violated his duty of loyalty to the plan by failing to protect plan assets from dissipation.

The complaint seeks injunctions prohibiting the defendant from future violations of ERISA and preventing him from serving as a fiduciary or service provider to any ERISA-covered employee benefit plan in the future, as well as restitution of all losses caused to the plan.

This case was investigated by the EBSA Boston Regional Office and was litigated by the department’s regional solicitor in Boston. Employers and workers can contact that office at 617-565-9600 or EBSA’s toll-free number, 866-444-3272, for help with any problems relating to private sector pension and health plans. Additional information about the agency can be found at http://www.dol.gov/ebsa.

Solis v. Stephen Thomas
Civil Action Number: 1:11-CV-00326-JEJ

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