DOL Brings Complaint Against ESOP in MaineSeptember 15, 2020, 12:02 PM
In 2004, the Maine Oxy-Acetylene Supply Company, a Maine distributor of industrial, medical, and specialty gases, as well as welding and cutting equipment, supplies, and accessories (“Maine Oxy”), established the Maine Oxy-Acetylene Supply Company ESOP (the “Maine Oxy ESOP”). On or around October 16, 2013, the Board of Directors of Maine Oxy voted to terminate the Maine Oxy ESOP, effective November 1, 2013. As part of the termination process, the Maine Oxy ESOP sold 49% of Maine Oxy’s stock to Maine Oxy for $3,305,540, or $134.92 per share (the “Transaction”).
The DOL filed a complaint on September 15, 2020, alleging that, among other things, (i) on or around September 28, 2012, Daniel Guerin (“Guerin”), the President and CEO of Maine Oxy, and Bryan Gentry (“Gentry”), a Director of Maine Oxy, purchased 51% of Maine Oxy’s stock for $16,692,900, or $654.62 per share (the “2012 Private Sale”); (ii) Maine Oxy directed that Atlantic Management Company (“AMC”) sign a non-disclosure agreement restricting AMC from disclosing any information related to the 2012 Private Sale to Carl Paine (“Paine”), the Maine Oxy ESOP’s Trustee; (iii) in its 2012 annual valuation report (the “2012 Valuation Report”), AMC assigned equal weighting to the Net Asset Value (“NAV”) Methodology and the Capitalized Returns (“CR”) Methodology, even though neither methodology was applicable to Maine Oxy, and AMC did not provide a rationale for the weighting of the methodologies (the results of which were $15.2 million and $2.5 million, respectively); (iv) Paine failed to adequately review, and question the assumptions in, the 2012 Valuation Report, and he failed to “gain an understanding of how the  Private Sale could have affected the 2012 Valuation [Report]”; and (v) Guerin and Gentry failed to monitor Paine and to “disclose necessary information about the  Private Sale.”1 As a result, Paine caused the Maine Oxy ESOP to receive “millions of dollars” less than it should have in connection with the Transaction.
The complaint represents only the DOL’s side of the story, and none of the allegations have been proven as yet. We will update this blog as developments in the case occur.
1 Complaint, Scalia v. Maine Oxy-Acetylene Supply Company, No. 2:20-cv-00326-NT (D. Me. Sept. 15, 2020), ECF No. 1.