U.S. Department of Labor Litigation Results in Atlanta Trust Company Paying $4.5 Million in Restitution to Employee Stock Ownership Plan

RALEIGH, NC – The U.S. District Court for the Eastern District of North Carolina has signed a consent judgment approving a settlement between the U.S. Department of Labor and Reliance Trust Co. Inc. involving the Tobacco Rag Processors Inc. Employee Stock Ownership Plan. The consent judgment requires Reliance Trust Co. Inc. – an Atlanta, Georgia, company – to pay $4,545,454 back to the plan within 30 days. Once the payment is made, the Department will assess a civil penalty of $454,545 against Reliance Trust Co. Inc.   

Investigators in the Department's Employee Benefits Security Administration (EBSA) found that, in May 2011, the owners of Tobacco Rag Processors Inc. sold 100 percent of the company stock to the plan for $82.5 million, purportedly for the benefit of the employees. EBSA determined the sales price of the company's stock exceeded fair market value and that Reliance Trust Co. Inc., as plan trustee, did not determine the sales price in good faith. Reliance Trust Co. Inc. failed to ensure that the financial information provided to the appraiser and used in its valuation was accurate and complete. Additionally, Reliance Trust Co. Inc. failed to thoroughly understand the appraiser's valuation and failed to meaningfully question the assumptions underlying the valuation. As a result of Reliance Trust Co, Inc.'s disregard of its fiduciary responsibilities, the plan overpaid for the company stock, causing losses to the plan. The Secretary of Labor filed a complaint against Reliance Trust Co. Inc. on May 4, 2017.

Under the terms of the consent judgment, signed on September 18, 2018, Reliance Trust Co. Inc. may not seek direct or indirect contribution or indemnification from Tobacco Rag Processors Inc., or the plan either to pay the judgment or to pay its legal expenses.

"The Department of Labor will continue to work to protect the retirement plans of hardworking Americans," said EBSA Regional Director Isabel Colon, in Atlanta. "Individuals and companies who act on behalf of workers investing in their future retirement plans should ensure they act in good faith and within their clients' best interests."

Employers and employees can reach EBSA toll-free at 866-444-3272 for help with problems related to private sector retirement and health plans. Additional information can be found at https://www.dol.gov/ebsa.