Bankers sued over retirement plan finances

By: Peter Vieth | Virginia Lawyers Weekly | July 13, 2020

A federal judge says a $12 million lawsuit can go forward against a group of bank officials accused of lining their pockets at the expense of employees’ retirement benefits.
The putative class action suit claims that officials at Louisa-based Virginia Community Bank – now part of a larger bank company – engineered a stock sale at an inflated price to fund the company’s employee stock ownership plan, referred to as an ESOP.
U.S. District Judge Glen E. Conrad decided June 26 that the plaintiffs’ legal team not only had made out sufficient allegations of fiduciary misconduct, but had properly alleged enough acts of concealment to toll the statute of limitations under the federal Employment Retirement Income Security Act. …

Cover-up alleged
Holding company Virginia Community Bankshares owned Virginia Community Bank, a state-chartered commercial bank with seven offices in central Virginia. The company’s ESOP was a leveraged ESOP, a type of retirement plan that borrows money for the purchase of the employer’s stock for the benefit of the plan participants, the defendants said in a pleading.
“As of 2016, there were more than 6,600 ESOPs in the U.S. and leveraged ESOPs were the most common type,” the defendants said.
Janice Moore, a former long-term bank employee, alleges that the bank companies and four bank officials procured an inflated stock valuation to enable two officials to take cash distributions of nearly $1.5 million for stock sales to the ESOP.
Moreover, Moore’s lawyers contend the bank and the individual defendants forced ESOP participants to pay for those “high-priced exits” of A. Pierce Stone and Ronald A. Spicer by arranging “illegal” loans between VCB as lender and the ESOP as borrower. The deal caused the ESOP to repay the loans in exchange for release of the high-priced stock between 2007 and 2016, the lawsuit alleges. The plan terminated in 2016.
Losses to the stock plan are in the range of $12 million, the complaint said. Close to 100 employees may be able to claim losses, the suit said. The lawsuit claims ERISA’s statute of limitations allows the claims – filed in August – to proceed because the defendants engaged in “active concealment” for many years to cover up their “fraud and ERISA violations.”
Specifics sufficient
Moore’s claims of financial shenanigans are bolstered by findings of the State Corporation Commission and the Federal Reserve Bank of Richmond, Conrad’s opinion said. A 2011 compliance agreement reportedly “revealed long-standing patterns of operational and compliance problems and regulatory violations.”
Moore says she became suspicious in late 2014 or early 2015. But she claims the defendants “engaged in a coverup to prevent her and other Plan participants from learning about the valuation and the 2007 and 2008 loans,” Conrad said.
Conrad concluded the lawsuit covered the basics and withstood scrutiny for specificity.
“In sum, the specific facts submitted by Moore allow the court to determine the who, what, when, where, and how of the alleged fraud,” Conrad wrote.
Timeliness issue
But the defendants said Moore did not act in time to bring her claims to the courthouse. The parties disagreed as to the proper standard. The defendants said the ERISA limitations period is tolled only for “fraudulent concealment.” Moore’s legal team said the exception applies in cases of fraud OR concealment.
“Authority is divided on this question, and the United State Court of Appeals for the Fourth Circuit has not decided which side of this split to join,” Conrad said. He concluded Moore’s pleadings suffice even under the more stringent test of fraudulent concealment.
Moore was deliberately thrown off the track, she alleged. She contended the defendants accused her of inadequate performance in 2017 after she began asking questions about the ESOP transactions.
“Moore also asserts that Stone ‘obfuscated her inquiry’ by claiming that he had lost money like other Plan participants, not that he had cashed out his share at a high price,” Conrad wrote. “Other courts have concluded that similar acts trigger the fraud or concealment exception.”
Conrad also said he could not conclude at this early stage that Moore had constructive notice of her claims before 2017 or that she was not sufficiently diligent.
Moore is represented by Mark J. Krudys, Harris D. Butler and Marie D. Carter, all of Richmond, as well as Jeffrey A. Sanborn of Charlottesville.
Sanborn said the plaintiff’s team would have no comment on the record.
The defendants are represented by attorneys in Philadelphia and Washington with the firm of Morgan, Lewis & Brockius LLP. Those attorneys were unavailable for comment.
Virginia Community Bankshares was acquired by Blue Ridge Bankshares Inc. last May in a $42.5 transaction, according to a BRB announcement.