Reliance Trust Co. Inc. has agreed to a $4.5 million deal to settle claims from the U.S. Department of Labor that it breached the Employee Retirement Income Security Act when it caused Tobacco Rag Processors Inc. workers to pay too much for shares of the company's stock in 2011.
U.S. District Judge James C. Dever III signed off on a consent judgment filed Tuesday by the DOL and Reliance Trust, part of which said the company will pay $4,545,454 to settle the claims, or cause its insurers to pay that amount. The deal said Reliance Trust doesn't deny or admit the DOL's claims.
Once that payment is made, the Labor secretary has to assess a civil penalty, according to the deal. The parties agreed the penalty will be $454,545, provided that Reliance Trust will keep the ability to ask to waive the civil penalty completely, according to the deal.
"The company shall pay the settlement amount to Argent Trust Company, in its capacity as trustee for the [Tobacco Rag Processors Inc. employee stock ownership plan, or ESOP], and for the benefit of the ESOP," the deal said. "The company shall not seek direct or indirect contribution or indemnification from Tobacco Rag Processors Inc. or the ESOP, and waives any rights it may have to such claims against Tobacco Rag Processors Inc. or the ESOP."
The DOL filed the case in May 2017 over a May 2011 stock purchase.
The complaint said Tobacco Rag Processors employees — through an employee stock ownership plan — bought stock shares from Tobacco Rag Processors shareholders for a higher price than what the shares were actually worth. The shares were transferred to the employee stock ownership plan for $104 million, according to the complaint.
Reliance Trust was brought in by Tobacco Rag Processors to negotiate the stock purchase's price and financing, serving as the employee stock ownership plan's discretionary trustee, according to the DOL. However, the DOL said Reliance Trust didn't take a meaningful look at Tobacco Rag Processors' valuation report at the time of the stock buy and instead looked to an appraiser's findings.
Specifically, the DOL said Reliance Trust didn't make sure the appraiser was given financial information that was complete or accurate. Additionally, the DOL said Reliance Trust failed "to thoroughly understand the appraiser's valuation and to meaningfully question the assumptions underlying the valuation."
Representatives for the DOL, Tobacco Rag Processors and Reliance Trust declined to comment on Wednesday.
The Department of Labor is represented in-house by Kate O'Scannlain, Stanley E. Keen, Robert M Lewis Jr. and Lydia J. Chastain.
Reliance Trust Co. is represented by Benjamin F. Sidbury and W. Bard Brockman of Bryan Cave Leighton Paisner LLP.
The case is Acosta v. Reliance Trust Co. Inc. et al., case number 5:17-cv-00214, in the U.S. District Court for the Eastern District of North Carolina.
As seen in Law360 by Adam Lidgett.