At a House Education Committee hearing before the Congressional recess, Rep. Randy Fine (R-FL) asked President and CEO of the ESOP Association Jim Bonham about a lawsuit between the Department of Labor and Bowers + Kubota Consulting.
00:00I'll call on Mr. Fine from Florida for his five minutes of questioning.
00:04Thank you, Mr. Chairman.
00:05So for 22 years, I was an entrepreneur and started, built, and grew companies.
00:10So I both created these plans as well as was in them.
00:13And so it's an important issue, and I think you've exposed a lot of real serious problems with how they're administered.
00:20Frankly, I didn't ever have any of these, so I'm breathing a sigh of relief sitting over here.
00:24No one ever sued me.
00:25But my question is for Mr. Bonham.
00:27The Department of Labor investigated and then filed a lawsuit against an ESOP plan sponsor, its board of directors, and its selling shareholders in the Bowers case.
00:38In 2021, the court found no violations of ERISA for a transaction that took place nine years earlier in 2012.
00:47I know a little bit about it, and it sounds like kind of a horror story and shows, you know, government gone wild.
00:52Can you describe what happened in this case and the cost of defending it?
00:57This is perhaps one of the best examples of the abuse that we've been talking about at EPSA that one can give.
01:05And I could go on for a much longer time than we have today.
01:09Well, you have three minutes and 56 seconds.
01:11You bet.
01:11So in this case, literally during the deposition, the investigator was asked, why did you go after Bowers and Kubota?
01:20And I quote, my supervisor, he gave me an assignment to find some ESOP cases in Hawaii, end quote.
01:27And again later, quote, my understanding is the department needed to have some exposure in Hawaii, end quote.
01:35Nine years later, nine years later, and millions of dollars in legal fees.
01:41There were no findings.
01:42In fact, the so-called expert that was hired to provide the expert valuation on behalf of the Department of Labor was completely discredited because he made an arithmetic error.
01:55And had his error been corrected and was known during discovery, had it been corrected, his valuation would have even been higher than what the ESOP actually paid for the value of the company.
02:08Since that time, the value of the company, since it was sold to the employees through an ESOP, has gone up more than 1,700 percent.
02:17These employees have benefited greatly.
02:19During the judge's ruling on this case, the judge said that this was not decided against DOL for a want of trying.
02:31It was decided because of a lack of evidence.
02:34The Department of Labor pursued this case relentlessly.
02:38The trustee died.
02:40And rather than dropping the case against the trustee, they replaced the trustee with the widow.
02:46That's how relentless they were in pursuit of this case.
02:49And they lost on every single case.
02:53Do you mind if I ask, and if you've got more context, you can share it, but does the government reimburse the company that has to spend the millions of dollars defending against what sounds like a spurious and kind of waste of time?
03:06The company has to sue in order to recover some of those costs.
03:10So they have to go deeper into the hole to pay more lawyers to try to get paid for the lawyers they already had to pay for because the government came after them.
03:17In this case in particular, Mr. Bowers, who was the wrong army ranger to pick a fight with, he tried taking this all the way to the Supreme Court.
03:27And it is almost impossible for a defendant to recover their litigation expenses.
03:34So the government can make stuff up, or actually just sort of target you for no apparent reason, it sounds like, because someone's boss needed somebody to have something to do.
03:42You can spend millions of dollars on lawyers.
03:45You win.
03:46Your name gets cleared after nine years.
03:49And then you still lose.
03:51Like, he didn't win.
03:53You know, if you have millions of dollars of legal fees, you still lost because you lost money that you had and you had distractions from operating your actual business.
04:02Any other thoughts on this case that you'd want to share?
04:06There are lots of other thoughts that I would like to share, but unfortunately we probably don't have the time to do it.
04:11But, you know, it's interesting, I've spoken at length with Mr. Bowers about this case, and when I asked him why he chose to fight, and he is a very rare example of this,
04:26because in almost every example it is a more prudent decision to just exercise your insurance policy, settle it out, and move on with life.
04:36He says, you know, EBSA made it so easy because they were so unreasonable in their approach.
04:44You know, the treatment of Bowers and Kubota in this case is no surprise to just about anyone in the ESOP community who's been investigated.
04:52And it's the type of behavior that we saw from the EBSA attorneys and their approach.
04:58You know, go find a case in Hawaii.
05:01And, like I said, nine years later and millions of dollars in defense.
05:05And this is where they are.
05:07Thanks for your context, and thank you, Mr. Chairman.
