The Department of Labor is suing an Indiana nursing home management company and a bank over a $40 million purchase made as part of an employee stock ownership plan.
The suit claims Miller's Health Systems Inc., of Warsaw, and PBI Bank, based in Louisville, in 2007 approved a $40 million purchase of stock that was well in excess of its fair market value. The suit also claims that PBI charged an excessive interest rate to finance the stock purchase.
The suit seeks restoration of all losses and the removal of PBI as the plan's fiduciary and service plan provider and to permanently bar it from such roles.
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"Fiduciaries must act with undivided loyalty to plan participants," Phyllis C. Borzi, assistant secretary of labor, said in a statement. "When it comes to ESOP stock purchases, they must ensure that the plan receives full value for its money."
The Labor Department said an investigation by the Chicago office of the Employee Benefits Security Administration concluded that the stock purchase was not for the primary benefit of plan participants or for the purpose of promoting employee stock ownership, both ERISA violations.
Lori Haug, Miller's chief financial officer, responded to the lawsuit via an email to the Journal Gazette of Fort Wayne, Ind.
"Miller's Health Systems Inc. has been a proud 100 percent employee-owned company since 2007," she wrote. "The (Department of Labor) believes that PBI Bank as trustee of the ESOP caused our ESOP to pay more than fair market value for the shares of the company stock in 2007. If that is the case, we expect PBI to reimburse our ESOP for any overpayment. We intend to continue our cooperation with the DOL in this investigation and expect a fair resolution for our employees."
Miller's Health manages long-term and assisted-care facilities. As of Sept. 30, its ESOP had about 3,000 participants and $12 million in assets.
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