US Labor Department obtains judgment to pay $1.1M to participants in Gruber Systems Inc. employee stock ownership plan in California

Date of action:  January 28, 2016

Type of action:  Consent Judgment and Order

Name of defendants: Gruber Systems Inc.; Gruber Systems Inc. Employee Stock Ownership Plan; and John Hoskinson, an individual

Allegations: Based on an investigation conducted by the U.S. Department of Labor’s Employee Benefits Security Administration, the department filed a complaint on May 29 alleging that the defendants caused the company’s employee stock ownership plan to purchase company stock for significantly more than fair market value, resulting in losses to plan participants.

The suit alleged the money should have been set aside to fund the retirement accounts of Gruber retirees, but was steered into stock purchases to fund the financially distressed company. The suit sought a reversal of the prohibited stock transactions, the restoration of any related plan losses, and a court order requiring the defendants to account for and restore losses to plan participants. Additionally, the department sought to permanently enjoin Hoskinson, Gruber’s CEO, from serving as a fiduciary or service provider to any plan covered by the Employee Retirement Income Security Act, his removal from any positions as a plan fiduciary, and the appointment of an independent fiduciary to distribute the plan’s assets.

Resolution: The judgment and order permanently enjoins the defendants from engaging in any further violations of the Employee Retirement Income Security Act and permanently bars them from serving as a fiduciary or service provider to any ERISA-covered employee benefit plan. Valencia, California-based Gruber Systems, and CEO Hoskinson, have been ordered to return $1.1 million to the company’s employee stock ownership plan for the losses. The judgment also requires Gruber Systems and Hoskinson to pay $220,000 in civil money penalties and orders the newly-appointed plan trustees to distribute the plan’s assets to the participants and beneficiaries, and terminate the Plan.

Quote: “Employee Stock Ownership Plans are intended to promote employee ownership and fund employees’ retirements, not to bail out a plan sponsor experiencing financial distress,” said Crisanta Johnson, regional director for the Employee Benefit Security Administration in Los Angeles. “We will vigorously pursue plan fiduciaries who engage in transactions with employer securities that are prohibited by ERISA.”

Court: United States District Court for the Central District of California

Docket Number: 2:15cv-4050-SVW-AS