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Regulators Question Valuations of Acme Holdings’ ESOPLock Icon

5 min read

The Acme Holding Co. Employee Stock Ownership Plan once was considered a source of pride for Allied Bank. The chairman and CEO of Acme Holding gushed about the ESOP’s value for retirement-minded Allied staffers.

“Everybody who works at the bank owns a piece of the bank,” said Lex Golden in a 2010 interview with Arkansas Business. “It’s a helluva 401(k).”

But unlike most 401(k)s, diversification wasn’t a strong suit of the Acme ESOP. Its value was tied almost exclusively to stock in Acme Holding, which in turn was tied to the financial performance of its biggest asset: Allied Bank.

2010 would be the last year the bank would record a profit en route to insolvency six years later. The net value of the ESOP’s assets in 2010 was pegged at more than $7.3 million.

However, a regulatory autopsy of Acme and Allied Bank by the Office of Inspector General of the Federal Reserve System casts a shadow on the ESOP valuation and the plan’s oversight by Golden and his son, Alex.

Criticism of the Goldens’ management of the ESOP was woven into the 40-page “Review of the Failure of Allied Bank” released in March.

The OIG noted concerns that the Goldens’ alleged insider abuse extended to their fiduciary oversight of the ESOP.

The Federal Reserve Bank of St. Louis prepared a referral for submission to the U.S. Department of Labor, which oversees ESOPs through its Employee Benefits Security Administration.

The May 16, 2013, submis-sion is described in the OIG report as “a separate attempt to remove the members of the controlling family from their management positions at Allied Bank and Acme and on Acme’s ESOP.”

The OIG report noted that “actions taken in response to FRB St. Louis’s referral to the U.S. Department of Labor were outside the scope of our review.”

Whatever did or didn’t happen in response to the referral, the Goldens remained aboard Allied, Acme and the ESOP until the bitter end.

“Specifically, the referral noted that illiquid employer securities [Acme stock] must be valued by an independent appraisal and outlined the criteria for performing the valuation,” the OIG report said. “The referral stated that Acme management did not satisfy the required criteria and noted, among other concerns, that [Alex Golden] and Acme management provided pro forma income statements to an independent appraiser that they knew, or should have known, were unreasonable.”

The referral asserted possible violations by the Goldens to discharge their fiduciary duty to act in the interest of all ESOP participants and beneficiaries.

The St. Louis Fed referral implies that the Goldens profited from favorable valuations at the expense of other ESOP participants.

As it turns out, the value of the ESOP evaporated even faster than the capital of Allied Bank. From its peak value of more than $7.5 million in 2009, the net value of the plan assets fell to negative numbers by 2012.

The final ESOP report, submitted Oct. 13, 2016, by the bankruptcy trustee for Acme Holding, counted 38 active participants and 70 retired. Net value of the plan’s assets: -$2,369,774.

The OIG report noted Lex Golden lost voting control over the ESOP shares in January 2014 at the direction of examiners. Three months later, Acme Holding Co., parent company of Allied Bank, filed for bankrupt-cy, and the Golden family continued to control Allied Bank until its failure in September 2016.


  Net Plan Assets Benefits Paid Active Participants Retired*
2009 $7,559,505 $0 48 18
2010 $7,339,495 $234,033 46 23
2011 $4,255,988 $540,828 48 24
2012 -$1,306,283 $29,198 45 34
2013 -$2,369,000 $4,549 47 37
2014 -$2,369,012 $0 42 44
2015 -$2,369,777 $759 38 51
2016 -$2,369,774 $0 38 70

*Includes former Allied Bank employees and beneficiaries entitled to future benefits
Source: U.S. Dept. of Labor, Employee Benefits Security Administration

‘It Was Sweat Equity’
Lex Golden was questioned under oath about the ESOP as part of a bankruptcy court hearing in Fayetteville to determine the fate of Acme Holding.

In response to lawyers representing Acme creditors, Golden talked about the formation of the ESOP and more while on the witness stand April 2, 2015.

He said the ESOP began as a profit-sharing plan in 1986. That’s when Golden acquired the Bank of Mulberry, the foundation for what became Allied Bank 16 years later.

Golden was well acquainted with ESOPs. Before striking out on his own, he was chairman and CEO of North Little Rock’s First American Bancshares Inc.

The holding company for First American National Bank included an employee stock ownership plan as part of its corporate structure.

When J.B. Hunt and David Howell purchased First American Bancshares in 1986, Golden was among its ESOP participants who cashed in.

Acme Holding Co. ESOP, originally known as Bank of Mulberry ESOP, was formed on Jan. 1, 1990, according to filings with the U.S. Department of Labor’s Employee Benefits Security Administration.

Among other things, the agency monitors compliance with the Employee Retirement Income Security Act of 1974.

“The ESOP is required, under ERISA, to have an annual appraisal of the value of those shares for the participants, who are not considered sophisticated investors, to know what that value is,” Lex Golden said on the witness stand in bankruptcy court three years ago. “And frankly, it’s at zero now based on the inability to make contributions to the plan and because Acme is in the current condition it’s in.”

ESOP shares were awarded to employees to augment their Allied Bank salaries, which didn’t rank among the highest in banking, according to one former staffer.

“This was a part of our compensation there,” said the staffer. “It wasn’t cash money. It was sweat equity.”

During his bankruptcy testimony three years ago, Lex Golden described the purpose of an ESOP:

“It’s to facilitate the purchase of stock on behalf of the participants, and leverage it, and set a price on it, which becomes, if the company does well, becomes a benefit to the participant, because his cost is set here, and it’s valued each year, and if it rises in value, he’s got a better — better retirement plan.

“It was intended as a benefit to the employees.”

Under the plan, employees were entitled to receive cash for the shares held in their ESOP account within one year of retiring or leaving the company.

“And it’s a non-contributory account,” Golden said on the witness stand. “None of those employees have a penny invested in it. It’s all been employer donations.”

While that sounds magnanimous and even charitable, Golden was the prime beneficiary of the ESOP.

He received cash for selling stock to the ESOP while still maintaining control of the company through shares retained and voting control of the ESOP.

Back in 1996, Golden held a 69.7 percent stake in Acme Holding while the ESOP held 14.8 percent. Toward the end, the Acme ESOP owned 41.1 percent, and Golden owned nearly 21.4 percent.

What happens to the value of the ESOP or the accounts of participants if Acme fails?

“They would lose it,” said Lex Golden.

And that’s what happened as the Arkansas State Bank Department and federal regulators allowed the Goldens to stay in control as Acme and Allied Bank cratered after a six-year death spiral.

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