A Michigan federal district court judge declined to dismiss most of a suit alleging that the trustee of a steel company’s employee stock ownership plan (ESOP) permitted it to buy $60 million in stock at an inflated price. According to the court’s ruling, the plaintiff adequately supported his claim that the plan trustee Capital Trustees LLC and SAC Ventures Inc. violated the Employee Retirement Income Security Act (ERISA) during the November 2020 stock deal. Although the court dismissed one of the plaintiff’s prohibited transaction claims, it found that the remaining claims satisfied basic pleading standards, including a prohibited transaction claim targeting the loan used in the stock deal.

The case is Bonds v. Heeter et al., case number 2:23-cv-12045, U.S. District Court for the Eastern District of Michigan.

Plaintiff Richard N. Bonds alleged in his August 2023 proposed class action suit that Flat Rock Metal and Bar Processing Stock Ownership Plan purchased one million shares of SAC stock for about $60 million at an inflated price. SAC is a holding company for several steel producers. The stock was later valued at $3.6 million on December 31, 2020, and $17.1 million on December 31, 2021.

Bonds also claims that the trustee breached its fiduciary duties in failing to fully investigate and approve the stock purchase, with full knowledge that it would receive ongoing fees because of the approval.

SAC argued that Bonds had no standing to bring the case because he could not substantiate that the stock was overpriced. However, the court pointed out that while SAC’s argument was relevant to the substance of Bonds’ claim, it was irrelevant to his standing. The judge found that Bonds had standing to bring the suit based on his allegations.

The judge also refused to dismiss Peter F. Shields and Paul J. Lanzon, SAC company president and treasurer, from the dispute, who claimed that they could not be held liable as co-fiduciaries. Again, the judge ruled that Bonds had shown sufficient evidence of their potential accountability as directors with fiduciary responsibilities at SAC.

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