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Bailey Glasser’s ERISA group represents workers enforcing their rights to proceeds from ESOP transaction.

GreatBanc, Homebuilder Sued Over Employee Stock Deals

Law360 (December 3, 2018, 6:53 PM EST) — GreatBanc Trust Co. and a Missouri-based homebuilder have been hit with a proposed class action in Illinois federal court accusing them of flouting the Employee Retirement Income Security Act by engaging in two prohibited transactions involving the homebuilder’s employee stock ownership plan.

Participants in the plan sued GreatBanc, McBride & Son Management Co. LLC, McBride & Son Capital Inc. and certain affiliated individuals on Friday, alleging they caused McBride & Son’s employee stock ownership plan to sell its shares at less than market value to benefit corporate insiders at the expense of the plan’s participants and beneficiaries. The participants pointed to two transactions by the plan in 2015 and 2017 that they said were prohibited under ERISA.

In the first transaction, the plan fiduciaries — Great Banc, McBride & Son Management and the individuals — let McBride & Son Capital buy 14,665 shares of common stock from the plan in December 2015 for about $2.5 million, which was less than the stock’s market value, the participants said.

As of January 2014, the plan had been the sole shareholder of McBride & Son Capital, which was the holding company for the affiliates and subsidiaries in the McBride & Son homebuilding conglomerate, according to the participants. GreatBanc was the trustee to the plan, the participants said.

The participants alleged that purpose of the transaction was to advantage corporate insiders in the conglomerate by spinning off a subsidiary called Builder’s Bloc. The fiduciaries later had the plan repurchase 14,665 treasury shares of McBride & Son Capital for the same price as the initial transaction in September 2016 in a deal that was financed by a 10-year promissory note between the parties, according to the participants.

In the second transaction, McBride & Son Capital was allowed to purchase all of its common stock in November 2017 for a total of roughly $16.5 million, including forgiveness of the promissory note, which was a price below the stock’s market value, the participants said. The purpose of the transaction was to let corporate insiders take over McBride & Son Capital and the conglomerate at the expense of the plan’s participants and beneficiaries, according to the participants.

The participants said that the two transactions were prohibited by ERISA and that the fiduciaries had breached their fiduciary duties when they caused the plan to sell the McBride & Son Capital stock at less than market value. Great Banc, McBride & Son Management and the affiliated individuals were personally and jointly and severally liable for losses to the plan caused by the violations, the participants said.

McBride & Son Capital also was subject to equitable relief since it knowingly participated in the breaches, the participants argued. Appropriate equitable relief included disgorging profits and rescinding the transactions, among other things, the participants said.

The participants asked to represent a class of approximately 169 participants and beneficiaries of the plan.

Mark G. Boyko, an attorney for the participants, told Law360 on Monday that they were confident in the case.

“We’re confident that the facts are going to show that the insiders purchased the company from the employees at a price that was much lower than a fair market value for the company,” Boyko said.

Julie A. Govreau, senior vice president and general counsel for GreatBanc, told Law360 on Monday that the company looked forward to its day in court.

“We categorically deny the allegations in the complaint, and we look forward to having our day in court so that all of the facts and our side of the story can be told,” Govreau said.

A representative for McBride & Son Management told Law360 in a statement Monday that the company had not yet been served with or reviewed the complaint, and declined to comment further.

The participants are represented by Mark G. Boyko, Patrick O. Muench, Ryan T. Jenny and Gregory Y. Porter of Bailey & Glasser LLP.

Counsel information for the defendants wasn’t available Monday.

The case is Godfrey et al. v. Greatbanc Trust Co. et al., case number 1:18-cv-07918, in the U.S. District Court for the Northern District of Illinois.

–Editing by Aaron Pelc.