Valuation Missteps and Asset Tracing Take Center Stage in Lloyd v. Argent Trust Co.

In a pivotal Employee Retirement Income Security Act (ERISA) litigation, the court granted plaintiffs leave to amend their complaint to pursue claims against family trusts that received over $70 million in proceeds from a controversial Employee Stock Ownership Plan (ESOP) transaction.

The ruling in Lloyd v. Argent Trust Co. underscores the critical role of valuation integrity and asset tracing in fiduciary breach cases.

Understanding the Key Issues

Valuation flaws:

Plaintiffs allege that the ESOP overpaid for WBBQ Holdings stock based on inflated financial projections provided by insiders. The trustee, Argent Trust Co., allegedly failed to account for foreseeable financial risks and ignored dilution effects from outstanding warrants. The stock, purchased at $247 per share, declined to $18.52 per share within four years. While an observation of stock price decline may appear troubling on the surface and is commonly used by plaintiffs to suggest flawed valuation methodology, in many cases it ignores the levered nature of ESOP transactions where a significant drop in stock price is commonplace and expected considering incremental debt used to finance the stock purchase.

Asset tracing breakthrough:

Discovery revealed that Herbert and Gregor Wetanson transferred ESOP proceeds to two family trusts — the BBQ Trust and the Gregor Wetanson 2015 Gift Trust — without consideration. These trusts, previously shielded from scrutiny, became central to the plaintiffs’ claims for restitution and disgorgement under ERISA and fraudulent transfer under New York’s Uniform Voidable Transaction Act (UVTA).

The Court’s Ruling

The court found good cause to allow amendment, citing plaintiffs’ diligence in pursuing asset tracing despite prolonged delays caused by a procedural stay. It rejected defense arguments of futility and prejudice, affirming that trusts and their beneficiaries can be held accountable when they receive ill-gotten gains. The ruling validates the use of targeted discovery to follow the money trail and expand liability beyond initial fiduciaries.

Key Takeaways

This case highlights how strategic asset tracing and forensic financial analysis can transform the scope of fiduciary litigation. Parties involved in the transaction should be transparent and ensure that the financial advisor to the trustee is provided with all available information pertaining to the transaction.

Weaver’s forensics and litigation services team helps clients untangle complex financial disputes through rigorous valuation analysis and asset tracing. Contact us. Our team can help provide the clarity and support needed to address fiduciary breach matters with confidence.

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