Consent Order and Judgment Entered Into in New York ESOP Case

On November 20, 2012, the Contractors Register ESOP (the “CR ESOP”) purchased 100% of the outstanding stock of Contractors Register, Inc. (“CR”), a New York corporation “predominantly engaged in publishing The Blue Book of Building and Construction,” from James O’Malley, CR’s CEO and Chairman, for $26.7 million.

The DOL filed a complaint on August 22, 2019, alleging that Professional Fiduciary Services, LLC (“PFS”), the CR ESOP’s trustee, did not, among other things, “scrutinize and critically question” Prairie Capital Advisors, Inc.’s (“Prairie”) valuation report and caused the CR ESOP to overpay for CR’s stock by “tens of millions of dollars.”

The DOL and PFS settled all matters between them on January 12, 2021.¹ PFS agreed to pay $750,000.00 over a three-year period to the CR ESOP. The DOL initially waived the ERISA § 502(l) penalty. However, PFS agreed that if its Total Income for 2020, 2021, or 2022 exceeded its Total Income for 2019 by more than 30%, then PFS would pay 20% of the difference to the CR ESOP within 30 days (the “Additional Recovery Amount”), and the DOL would assess an ERISA § 502(l) penalty equal to 20% of the Additional Recovery Amount. The case is closed.

Takeaways

• PFS, the CR ESOP’s trustee, did not “scrutinize and critically question” Prairie’s valuation report.
• PFS agreed to pay $750,000.00 over a three-year period to the CR ESOP.
• The DOL initially waived the ERISA § 502(l) penalty.
• If PFS’s Total Income for 2020, 2021, or 2022 exceeded its Total Income for 2019 by more than 30%, then PFS would pay 20% of the difference to the CR ESOP within 30 days (the “Additional Recovery Amount”), and the DOL would assess an ERISA § 502(l) penalty equal to 20% of the Additional Recovery Amount.

¹ Consent Order and Judgment, Scalia v. Professional Fiduciary Services, LLC, No. 7:19-cv-07874-KMK-PED (S.D.N.Y. Jan. 12, 2021), ECF No. 30.