[Don’t] Tell Me Lies, Tell Me Sweet Little Lies … or the SEC will charge you with fraud

/in , , , , ,

by John Ludlum

Many private companies assume that if valid federal and state exemptions from registration are available for private company securities that there is little risk of problems with the Securities Exchange Commission (SEC).  While it is rare for the SEC to take an interest in private company transactions, many SEC Rules apply to private company securities and transactions.

In one example, Stiefel Labs (Company) maintained an Employee Stock Bonus Plan (Plan) with Company contributions funded, at least in part, by shares of Company stock.  As a private company, repurchases by the Company were the only way for employees to receive liquid funds for their shares.  The Company engaged independent accountants to perform fiscal year end valuations and made this valuation information available to Plan participants and used this value for repurchases for the next year. 

Read more

Walk this way…to avoid the pitfalls of ERISA

/in , , , , , , , , , ,

by John Ludlum

Companies implement bonus plans to meet a variety of business objectives:  retention, specific company business goals, change of control, and others.  In designing bonus plans, there are a variety of legal fields that must be understood for exemption or compliance including securities, tax, ERISA, and employment.  Many times, bonus plans that pay only in cash for achieving specific corporate objectives and which require services through the date of payment are exempt from onerous compliance mandates; however, if a bonus plan is found to provide retirement income or “results in a deferral of income by employees for periods extending to the termination of covered employment or beyond,” then that arrangement may be found to be a “pension plan” under ERISA Section 3(2) (29 U.S.C. § 1002(2)(A)).  Once a bonus plan is subject to ERISA, it must comply with ERISA’s annual reporting, participant communications, funding, participation, vesting, and fiduciary duty requirements. 

Read more

I can’t drive 55 – or classify my workers

/in , , , , , , , , , , , , , , , , , , ,

by John Ludlum

Making correct classifications between independent contractors and employees is not getting simpler with flexible, geographically-distributed workforces.  For those with long memories, a key case in the area of worker classification was issued by the Ninth Circuit in Vizcaino v. Microsoft Corporation, 97F.3d 1187 (CA-9, 1996).  Vizcaino v. Microsoft held that certain workers, originally hired as independent contractors, were actually employees who were entitled to benefits under Microsoft’s 401(k) plan and Microsoft’s Employee Stock Purchase Plan.  Determinations like this can lead to substantial corrections costs to fix tax-qualified benefit plans as well as to make the contributions required under plan terms to the improperly excluded employees. 

Read more