The Pension Rights Center waded into a dispute involving Choate Construction Co.'s employee stock ownership plan, urging the Fourth Circuit to revive the employees’ lawsuit and recognize the “special risks” these plans pose for workers.
ESOPs—retirement plans that allow workers to own stock in their employer—carry investment risks because of their lack of diversification, the Pension Rights Center said in a brief filed Monday.
They’re also “vulnerable to abuse” given the conflicts that can arise when corporate insiders sell their stock to a plan, the retirement security-focused group said.
These transactions should be carefully scrutinized so that workers don’t pay an excessive cost to become owners of their company, it said.
“Thorough and careful due diligence is necessary for private company ESOP transactions because there is no public market to establish the fair market value for the company’s stock,and no public filings provide information about the company’s financial condition and prospects,” the group said.
The Choate employees allege they were forced to pay $198 million for company stock that may have been worth less than $65 million, according to their 2019 lawsuit. They sued Choate and the trustee of their ESOP, Argent Trust Co., claiming violations of the Employee Retirement Income Security Act.
A federal judge in North Carolina dismissed the lawsuit last year, saying the employees misunderstood the stock transaction, which actually benefited them.
The Pension Rights Center disagrees, saying the Choate employees presented enough evidence of ERISA violations to survive a motion to dismiss.
The Pension Rights Center represents itself, along with Feinberg, Jackson, Worthman & Wasow LLP.
The case is Lee v. Argent Tr. Co., 4th Cir., No. 19-2485, amicus brief 3/30/20.