US Labor Department files lawsuit against Commodity Control Corp. in Florida, to recover losses to ESOP due to overvaluation of the company stock

Date of action: Jan. 20, 2016

Type of action: Complaint

Names of defendants: Commodity Control Corp., David J. Pilger, the estate of William M. Pilger, and Commodity Control Employee Stock Ownership Plan and Trust

Allegations: On Dec. 30, 2008, the defendants established the Commodity Control Employee Stock Ownership Plan in Miami, Florida. David and William Pilger served as co-owners of Commodity Control and trustees of the ESOP. The U.S. Department of Labor’s Employee Benefits Security Administration filed a complaint against the defendants, alleging the defendants acted with imprudence, disloyalty, and contrary to plan documents; and engaged in prohibited transactions in violation of the https://www.dol.gov/general/topic/retirement/erisa. Specifically, they caused the ESOP to purchase employer common stock for greater than fair market value.

Early in 2009, David and William Pilger caused the ESOP to buy their entire ownership interest in the company for $9.1 million, thereby causing the ESOP to acquire 100 percent of the company. The complaint alleges that the ESOP overpaid for the company stock. The overpayment was a result of the defendants’ failure to obtain an accurate and current appraisal of the company stock; ensure that the independent appraiser of the company stock had accurate and complete financial information; perform a review of the valuation reports prepared by an independent appraiser; and not questioning assumptions underlying the valuation reports.

The complaint also alleges that the defendants violated ERISA when they caused the promissory notes issued by the ESOP to David and William Pilger to include default provisions that were contrary to the ESOP document. Specifically, the ESOP document limited recovery to the amount of the default; however, the promissory notes required the ESOP to immediately repay the notes and pay the cost of collection and attorney fees in the event of default.

Resolution: The department is asking the court to require the defendants to jointly and severally restore losses caused to the ESOP as a result of their fiduciary breaches; to require David and William Pilger to disgorge any cash, payments or proceeds that they received for any of the ESOP stock purchases; and to permanently enjoin all defendants from serving as fiduciaries or service providers to ERISA plans in the future.

Court: U.S. District Court for the Southern District of Florida, Miami Division

Docket Number: 1:16-cv-20245