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Tuesday, February 27, 2024
Courthouse News Service
Tuesday, February 27, 2024 | Back issues
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Bank Employees to Get $1M for Mishandled Stocks

     SAN FRANCISCO (CN) - Private bank executives accused of cheating employees out of more than $1 million in cash and interest for their shares in a stock ownership plan must pay employees their due, a federal judge ruled this week.
     U.S. Secretary of Labor Thomas Perez sued California Pacific Bank's CEO Richard Chi and board members Akila Chen, Ken Chen and William Mo in August 2013 for allegedly violating the Employee Retirement Income Security Act of 1974, or ERISA.
     In his Oct. 24 ruling, U.S. District Judge James Donato found that evidence uncovered in a recent bench trial supported holding the bank managers liable for four counts of ERISA violations.
     But the bank's attorney, Matt Powell, said in an interview that the ruling was "a gross miscarriage of justice," noting that the judge refused to let the bank present evidence that the Department of Labor told the Federal Deposit Insurance Corporation (FDIC) not to let the bank buy back shares from employees, which formed the basis of one count against the defendants.
     The bank was required to offer to buy back shares from employees within one year of the stock ownership plan's termination, but it needed permission from the FDIC to fulfill that duty, Powell said.
     "The bank was ready, willing and able to repurchase the stock," Powell said.
     U.S. District Judge James Donato previously found in a July 2015 ruling that the defendants triggered losses of $1.39 million by mismanaging the plan in four ways.
     Donato said the bank managers diverted $81,000 of a $132,000 plan payment to the bank; improperly transferred $70,000 from the plan to the bank; held plan assets in noninterest-bearing accounts; and failed to liquidate shares and distribute cash to employees after the plan was terminated in 2010.
     Donato also chastised bank managers for sending a letter to employees in February 2010 "replete with misinformation" that told them they had "no right to request the bank repurchase their stock at all."
     "Defendants' conduct was in blatant disregard of the express terms of the Plan document and of the defendants' fiduciary duties under ERISA," Donato wrote in his 19-page ruling.
     The judge directed the bank managers to distribute $859,000 in cash and interest for shares in the plan that he found was improperly withheld.
     Donato also ordered the defendants to put $151,000 back into the plan to make up for the improperly diverted $81,000 payment and unauthorized transfer of $70,000 in plan assets.
     That $151,000 plus interest must be distributed to employees as cash for bank shares in accordance with the guidelines and best practices prescribed by the Secretary of Labor, Donato ruled.
     The judge rejected arguments posed by some bank executives who feigned ignorance about their duties as plan trustees, finding that their purported lack of understanding did not excuse their failure to follow the law and make sure employees received cash for their shares after the plan was terminated in 2010.
     "The testimony of each of these trustees shows they did not understand or appreciate their responsibilities as fiduciaries of the Plan, and they provided little or no oversight of Chi," Donato wrote. "These trustees failed to fulfill their fiduciary responsibilities, and by doing so enabled Chi to commit this breach."
     Powell said no evidence exists to suggest the bank managers profited for themselves at the expense of the plan.
     "They were not compensated for any of the work they did for the plan, and the bank paid all of the expenses of the plan," Powell said. "At each juncture, Mr. Chi and the trustees were trying to do the right thing."
     Powell, who works for Wilke Fleury Hoffelt Gould & Birney of Sacramento, said his clients plan to appeal the ruling.
     The U.S. Department of Labor did not immediately return a phone call seeking comment Friday morning.

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