On May 6, 2011, the Tobacco Rag Processors, Inc. ESOP (the “Tobacco Rag ESOP”) purchased 100% of the outstanding shares of Tobacco Rag Processors, Inc. (Tobacco Rag), a North Carolina corporation that manufactures and distributes tobacco for use by manufacturers of cigarettes and cigars. The total transaction price was $104 million, of which the Tobacco Rag ESOP paid $82.5 million.
The DOL filed a complaint on May 4, 2017, alleging that Reliance Trust Company, Inc. (Reliance), the ESOP’s discretionary trustee, did not thoroughly understand or analyze Willamette Management Associates’ (Willamette) “flawed” valuation report and caused the Tobacco Rag ESOP to pay “much more than [Tobacco Rag’s] shares were worth.”
The DOL and Reliance settled all matters between them on September 18, 2018;1 Reliance agreed to pay $4,545,454.54 to the Tobacco Rag ESOP and, pursuant to ERISA § 502(l), a civil penalty of $454,545.45 was imposed upon Reliance. The case is closed.
Takeaways
- Reliance, the Tobacco Rag ESOP’s trustee, did not thoroughly understand or analyze Willamette’s valuation report.
- Reliance agreed to pay $4,545,454.54 to the Tobacco Rag ESOP.
- Pursuant to ERISA § 502(l), a civil penalty of $454,545.45 was imposed upon Reliance.
1 Consent Judgment, Acosta v. Reliance Tr. Co., No. 5:17-cv-00214-D (E.D.N.C. Sept. 18, 2018), ECF No. 27.
