U.S. Increases Scrutiny of Employee-Stock-Ownership Plans

I found this article about employee-stock-ownership plans and how the valuation plays key role to avoid future law suits.


Some owners are selling stakes in their companies to employee-stock-ownership plans at inflated prices, the government says, jeopardizing those savings.

The Labor Department is the plaintiff in 15 lawsuits related to employee-stock-ownership plans, with “virtually all” the cases alleging shoddy estimates of what a company’s shares are worth, said Timothy Hauser, a deputy assistant secretary at the agency’s Employee Benefits Security Administration.

“Valuation is the first, second, third and fourth problem,” Mr. Hauser said. In March, Labor Secretary Thomas Perez told lawmakers that some appraisals “have been deliberately inflated,” comparing them to real-estate-bubble-era home appraisals that “masterfully came in at what you needed.”

Frank Brown, a managing director at valuation firm Willamette Management Associates who testifies for companies and workers in stock-plan-related cases, said the number of lawsuits has “gone up substantially.”

To a business owner, the value of the business is more then dollars and cents. However, the value of the business has to be well vetted, carefully planned over time and valued well in advance of transition.

photo credit: Iván Fandiño en Lima via photopin (license)

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