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A California law firm and a Hawaii architectural firm are in the crosshairs of a lawsuit by the Labor Department over the alleged mishandling of a $40 million employee stock ownership plan transaction.

Nicholas L. Saakvitne of Nicholas Saakvitne, a Law Corporation-a law firm that specializes in ESOP fiduciary services-allegedly relied on a flawed, inflated valuation of the Bowers Kubota Consulting Inc. stock to approve a transaction that allegedly caused Bowers Kubota employees to overpay for the architectural firm's stock, according to a lawsuit filed April 27 by the DOL in federal court in Hawaii.

In recent years, the DOL has been very active in its enforcement efforts against institutional trustees that valuate stock in employee stock ownership plan transactions. This is the first lawsuit the DOL filed in 2018 against an institutional trustee involved in an ESOP transaction.

Saakvitne allegedly failed to prudently investigate the merits of the transaction and the true value of the stock on behalf of the plan, a duty he owed the plan as its institutional trustee under the Employee Retirement Income Security Act, the lawsuit said.

Saakvitne allegedly relied on an appraisal provided by Bowers Kubota's former directors that valued the firm at $40 million. The valuation allegedly relied on overly optimistic and aggressive revenue projections that were "demonstrably inaccurate" and that diverged "significantly" from the firm's prior performance. Saakvitne failed to question the valuation and made minimal and superficial efforts to negotiate the stock sales price, the lawsuit said.

Saakvitne denies the agency's allegations and will strongly defend this litigation, he told Bloomberg Law via email April 30.

Brian J. Bowers and Dexter C. Kubota knew that the financial information they provided to an appraiser wasn't reasonably accurate, the lawsuit said. They also failed to take reasonable steps to monitor Saakvitne, the lawsuit said.

Bowers Kubota didn't immediately respond to Bloomberg Law's request for comments.

The DOL's Office of the Solicitor represents the agency.

The case is Acosta v. Saakvitne , D. Haw., No. 1:18-cv-00155-ACK-RLP, complaint filed 4/27/18.


As seen in Bloomberg Big Law Business.