Well now, this could get interesting fast. The Chicago Tribune reports that the U.S. Labor Department is investigating the Tribune Company employee stock ownership plan and GreatBanc Trust Co., which was hired to represent employee interests in the $8 billion leveraged buyout that gave Sam Zell control in 2007. Court filings show that the Internal Revenue Service also has audited the ESOP, "which Zell employed in the novel transaction to shield Tribune Co. from sizeable tax obligations once it went private," the story says.
The ongoing investigations and a federal lawsuit filed in 2008 by current and former Los Angeles Times workers had been overshadowed by Tribune Co's 2-year-old bankruptcy drama.
But both gained steam Nov. 9 when U.S. District Judge Rebecca Pallmeyer ruled that GreatBanc violated its fiduciary duty in the first step of the leveraged buyout. GreatBanc purchased $250 million in unregistered stock from Chicago-based Tribune Co. on behalf of the ESOP, she said, rather than buying common stock on the open market as federal employment law requires.
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The case has been trimmed down, and Tribune Co. and most of its officials have been dropped as defendants. However, Pallmeyer's ruling establishes a legal precedent under which the Labor Department could also seek civil penalties from GreatBanc, said Michael Knoll, professor at the University of Pennsylvania's Law School.
GreatBanc said it disagreed with the judge's ruling and was plotting the best course for an appeal.