Is is possible for the trustee and lender to be the same bank? I have seen this arrangement before. Is this a prohibited transaction, or because the loan meets the exempt loan definition is it exempt?

I realize there are other reasons not to recommend this situation due to the potential conflict of interst issue should the loan go into default, but also wanted to know if it is otherwise prohibited for any other reason.

The DOL doesn't like this arrangements. See DOL Ad. Op. 76-32. However, some courts don't find them per se bad. See Ershick v. Greb X-Ray Company, 12 EBC 2323, 706 F. Supp. 1482 (D.C. Kan 1989), Brock v. Citizens Bank of Clovis, 10th Cir. 1988, 9 EBC 1609, and Friend v. Sanwa Bank California, 9th Cir. 1994 LEXIS 24805.


I certainly don't like them because of the conflict of interest, but there are a number of ESOP practitioners who do them. If you enter into such a dual relationship with a bank, I recommend that you have an independent fiduciary approve any transactions involving purchasing or selling company stock.


[This message has been edited by Kirk Maldonado (edited 05-05-2000).]

Depending on the details of the transaction, a prohibited transaction may be involved.

If not, it may be possible but is probably foolish.