A federal district court in Nashville, Tenn. has
ordered Century Health Services, Inc. to repay the present monetary value of
$2.76 million, estimated to be at least $4.1 million, to the companys
employee stock ownership plan (ESOP), according to a court order obtained by
the U.S. Department of Labor.
Century Health Services, Inc. and its 10
subsidiaries provided home health care primarily to Medicare beneficiaries
throughout Tennessee. The company sponsored the pension plan for employees of
Century and affiliated subsidiaries.
The court order resolves a lawsuit filed by the
Labor Department on May 13, 1997 against Century Health Services and ESOP
trustees George D. Gilley (a resident of Flossmoor, Illinois) and Billy Dean
Goforth (a resident of Homosassa, Florida) for violations of the Employee
Retirement Income Security Act (ERISA). The case was subsequently consolidated
with a lawsuit filed by the Department of Justice involving Medicare fraud.
The lawsuit alleged that the defendants siphoned
off assets of the plan and engaged in self- dealing which was detrimental to
the ESOP. Century allegedly transferred Medicare payments to the companys
ESOP as plan contributions during 1994 to 1995 and immediately re-routed the
money to the operating accounts of the company within 24 hours.
In a motion for summary judgment, the department
argued that $2.76 million of plan money was transferred to two stockholders of
Century without providing monetary compensation to the plan. These funds were
used by Century for operating expenses. When company stock was finally
transferred to the ESOP more than two years later in return for the funds, the
stock allegedly had little or no value according to the court. The court found
that the trustees did in fact use plan assets for the purpose of making
Century a viable concern and for their benefit as sole stockholders of
Century. Therefore, the court concluded that the defendants are liable
for losses suffered by the ESOP.
The court order, entered Aug. 28, resulted from an
investigation conducted by the Atlanta Regional Office of the Labor
Departments Pension and Welfare Benefits Administration into alleged
violations of ERISA.
(Herman v. Gilley) Civil Action No. 3:97-0504
|