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their MPG stock to an employee stock ownership plan (ESOP)4 which
he would form. Petitioners accepted this advice and on January
5, 1993, sold their stock to the First Management Co., Inc.
Employee Stock Ownership Plan and Trust (First Management), which
Jacob formed on December 28, 1992.
Jacob, Geoffrey, Peter, and two of MPG’s longtime
employees, Michael Onorato (Onorato) and Wayne Morgan (Morgan),
participated in the ESOP. Before forming the ESOP, Jacob sent a
letter to Geoffrey, Peter, Onorato, and Morgan advising them that
his role in the formation of First Management and its subsequent
purchase of stock created a likelihood of potential or perceived
conflicts of interest. Jacob advised each of the four to seek
the advice of an independent attorney regarding the ESOP. None
of them did so.
As part of the consideration for petitioners’ sale of their
MPG stock to First Management, Jacob, as the trustee of First
Management, executed a secured promissory note dated January 5,
1993. Under the note, First Management promised to pay to
Geoffrey and Peter the principal sum of $13,955,543, plus
interest, in 180 equal monthly installments. Payments under the
note were made to Jacob, who accepted the payments as the
representative of Geoffrey and Peter. Petitioners gave Jacob
4 We call the underlying plan an “ESOP” for convenience, not
because it met the requirements of sec. 4975(e)(7). The plan, in
fact, did not meet the requirements of sec. 4975(e)(7).
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