Vi-Jon Prohibited Transaction for Employee Stock Ownership Plan Class Action

The complaint for this class action brings suit under the Employee Retirement Income Security Act (ERISA) on behalf of the Vi-Jon Employee Stock Ownership Plan (ESOP). The complaint alleges that the defendants in this case conducted a prohibited transaction that violated ERISA and damage the ESOP’s participants. The defendants are the parties who participated in effecting the transaction.

The class for this action is all participants and beneficiaries of the Vi-Jon ESOP at any time since its inception (with certain exclusions).

Defendant Berkshire Fund VI, LP is a private-equity investor who buys and sells businesses. Most of these businesses have a “relatively frequent turnover,” the complaint claims, but the company had “fail[ed] for years to sell Vi-Jon at the inflated asking price of $400 million[.]”

One of the things Vi-Jon makes is hand sanitizer, however, so, according to the complaint, Berkshire, along with defendants John G. Brunner and the John G. Brunner Revocable Trust dated 06-09-1992, decided to take advantage of the early days of the pandemic to try to sell Vi-Jon again. Brunner’s grandfather had founded Vi-Jon; at this time, he had sold Berkshire its controlling interest but continued to own a minority stake in the company and was a member of its Board of Directors.

“But this time,” the complaint alleges, “rather than courting sophisticated buyers on the open market—who would negotiate at arms-length and understand that the pandemic-related boost in hand sanitizer sales was likely temporary and not a realistic predictor of long-term performance—Berkshire and the Brunner Defendants unloaded their interest onto the ESOP.” They did this through defendant GreatBanc Trust Company.

GreatBanc gets most of its income by providing services to employee benefit plans, particularly ESOPs. It was the trustee for Vi-Jon’s ESOP. The complaint alleges, “As trustee, GreatBanc had sole and exclusive discretion to authorize and negotiate the ESOP Transaction on behalf of the plan.” In August 2020, GreatBanc approved the transaction, which sold shares of Vi-Jon to the ESOP at $398 million, with a forty-nine-year loan from the company.

The complaint alleges, “In order to support the $400 million price, Defendants relied on overly optimistic financial projections based on temporary market conditions that had already started to expire before the deal closed. Business has only continued to slow down since, leaving the company short of Defendants’ targets while stuck paying 49[ ]years of installments on Defendants’ carelessly negotiated price.”

The complaint alleges that this transaction is prohibited by ERISA because the shares were not sold to the ESOP for their fair market value.

According to the complaint, although Berkshire was trying to sell the business to other parties, no one had wanted to buy it at that price—something the complaint alleges “was likely related to the company’s high debt load and lack of pricing flexibility in the industry.”

Article Type: Lawsuit
Topic: Employment
Tags: ERISA Violations, Prohibited Transactions, Retirement Plans, Stock Losses