SAN FRANCISCO (CBS SF) — The U.S. Department of Labor has won an $866,840 federal court judgment from California Pacific Bank for employees whose retirement accounts were not properly compensated when a stock option plan was discontinued.
California Pacific is a small, privately-held commercial bank with its headquarters in San Francisco and a branch in Fremont. The bank terminated its employee stock option plan in December 2010.
The Labor Department alleged in a 2013 lawsuit that California Pacific and the plan’s trustees violated their duty when they failed to liquidate the employees’ stock and put the cash proceeds into the workers’ individual retirement accounts.
U.S. District Judge James Donato ruled last year that the plan specifically required its trustees to liquidate all the employees’ stock at its appraised price within a year of termination of the plan.
He found that the bank, Chief Executive Officer Richard Chi and three other trustees failed to do so and instead put the stock into the retirement accounts. Some employees’ shares were later bought by Chi’s son and daughter, but after the one-year deadline.
In a final judgment filed on Oct. 24 of this year, Donato set the amounts of compensation, totaling $866,840, to be paid in cash to the retirement accounts of 17 present and former bank employees and officers.
“Defendants’ conduct was in blatant disregard of the express terms of the plan document and of the defendants’ fiduciary duties under the Employee Retirement Income Security Act,” Donato wrote.
Donato set the amounts after holding a one-day nonjury trial in April.
He found that in the cases of eight employees and officers, the bank did not buy back the stock and instead put the shares, which could not be publicly traded, into their individual retirement accounts.
In several other cases, Donato said, Chi’s son, who was a bank officer, and daughter bought employees’ stock at its 2009 appraised price of $12.75 per share beginning in 2013, but did not pay the correct amount of interest.
In two cases, the employees sold their stock for less than the appraised amount and did not receive any interest, the judge said.
The ruling also requires the defendants to restore to the plan $151,000, plus interest, that was improperly transferred from the plan to the bank. That money can be used to pay the judgment for the employees.
“The court’s order restores to workers the retirement benefits they were promised.” Labor Department administrator Jean Ackerman said. “The judgment is clear: plan fiduciaries must act not in their own interest, but in the best interests of the employees who participate in their benefit plans,” she said.
Matthew Powell, a lawyer for the bank and the trustees, called the ruling a “miscarriage of justice” and said they will appeal.
He said the trustees believed that liquidating the employees’ shares was optional and not a requirement.
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