Manke Pays Fund; Ends `Years Of Torture'

TACOMA

Manke Lumber Co. has agreed to pay its own employee profit-sharing plan $649,000, ending a scrap with the federal government that owner Charles Manke called "a couple years of torture."

The dispute started after Manke loaned money from its employee profit-sharing plan to a third party in 1985 to build a lumber treatment plant at the company. The $600,000 loan was later deemed an illegal transaction by the U.S. Labor Department.

Manke signed a consent decree with the Labor Department in 1991, after paying the $600,000, plus interest, back to the fund. The decree removed Charles Manke and the company's other owners, Virgil Manke and James Manke, as trustees of the profit-sharing fund.

The agreement also required Manke to pay the fund any profits the treatment plant made before the loan was paid back.

Meanwhile, Manke paid a $50,000 fine in 1991 after the U.S. Department of Justice brought charges relating to the transaction.

William Scates, the third party who borrowed the profit-sharing plan money to build the treatment plant, provided insurance brokerage business to Manke. He was ordered by the Labor Department in 1991 to pay back $84,000 to the fund for "knowingly participating in the transaction" and for accepting lease payments from Manke.

Charles Manke said,"the whole thing was an embarrassing fiasco."

But the incident has not hurt company's bottom line. The $649,000 payment to the profit-sharing fund is tax deductible and is a benefit for those of Manke's 475 employees who qualify for profit sharing, Charles Manke said.

"It goes to our people, who deserve it," he said. "We would have liked to make the contribution anyway."

Manke, located in the Port of Tacoma, has enjoyed a flourishing business relative to other timber mills. It produces 100 million board feet a year of finished lumber and has offset low demand for building materials by diversifying into treated lumber for sign posts and guard rails and pelletized wood fuel. Its annual sales are about $50 million.

Still, the government action has left a bitter taste in Charles Manke's mouth.

Manke says the company decided not to challenge the government because of the legal expense. He says the treatment plant may not have made $649,000 in profits and that the figure was arrived at arbitrarily by an accounting firm that audited the company.

But Manke also admits his company did not keep close tabs on what the treatment plant made in profits.

The Labor Department regarded the profit-sharing loan as a serious violation of the Employee Retirement Income Security Act, said John Scanlon, labor's district supervisor in Seattle, especially in light of other transactions the department discovered in a 1980 audit of Manke's fund.

The earlier violations date back to 1976 and involved loans that Charles, Virgil and James Manke made to themselves from the fund.