Government said Norco ex-CEO overvalued stock in sale to employees. What a judge just did
The former leader of a Boise-founded medical supplies business is no longer named in a lawsuit by the federal government over the company’s employee stock ownership plan.
The U.S. Department of Labor sued Norco, former CEO James Kissler, the company’s employee stock ownership plan and Alerus Financial NA in November 2023, saying they overvalued stocks sold to an employee retirement plan several years ago.
On Nov. 4, U.S. District Court Judge David Nye granted a motion from Kissler to dismiss the claims against him, citing insufficient evidence that Kissler breached his fiduciary duties or that he should be held liable as a cofiduciary or a knowing participant.
But Nye found that there was enough evidence to suggest Alerus might have breached its fiduciary duties, so he denied a motion from the financial services firm to dismiss the charges against it and allowed that part of the case to proceed.
The lawsuit alleges Alerus authorized a deal to pay Kissler and a related family foundation more than $140 million for 35% of Norco’s stock without performing a “good faith investigation” into its fair market value.
Norco, incorporated in Boise in 1967, sells medical supplies and welding, safety and industrial equipment and gases. It has 70 stores around the Northwest.
Kissler sold most of his shares in the company in 2015 to form a new retirement plan established for employees, the Idaho Statesman previously reported. He hired North Dakota-based Alerus to act as the plan’s trustee and independent fiduciary for the transaction.
Chartwell Financial Advisory, a valuation advisor, conducted an appraisal of the company.
“Alerus rushed its due diligence in order to close the transaction on the sellers’ preferred timetable, and in the process relied on a valuation report rife with manifest flaws that substantially overvalued the stock,” the lawsuit said. “Indeed, that report valued Norco at an amount nearly 250% greater than the value reached by a reputable valuation firm retained by Norco roughly three and a half years earlier.”
Federal law, under the Employee Retirement Income Security Act of 1974, requires fiduciaries to act prudently and pay no more than fair market value for the stock.
Kissler said lawsuit dragged family name ‘through the mud’
The lawsuit said the valuation report the transaction relied upon caused the employee stock and ownership plan to overpay by tens of millions of dollars. It said Kissler was closely involved in the transaction and knew that Alerus’s assessment of the fair market value of the shares was flawed.
Kissler previously told the Statesman that he was not involved in the negotiations or aware of the valuations. He also said the lawsuit was “dragging the Kissler name through the mud.”
“I don’t feel I did anything wrong,” Kissler said by phone. ”I wanted to share the wealth of the company’s growth with my employees, and the only way to do that, besides giving them good benefits and a good place to work, was to give them shares of stock.”
Kissler bought Norco from his father, Larry Kissler, in 1985. At the time of the transaction, he served as chairman of Norco’s board and had a 40% stake in the company.
This story was originally published November 11, 2024 at 4:00 AM.
