The DOL announced actions against four different plan sponsors last week. In sequence they are:
"U.S. Labor Department files complaint against fiduciary of defunct cardiology clinic in Memphis, Tennessee to recover 401(k) asset"MEMPHIS, The Labor Department’s lawsuit seeks to recover delinquent employer matching contributions and Safe Harbor Non-elective Contributions from the 2004 through 2006 plan years. The employer remitted the contributions made by employees into the 401(k) plan but did not contribute the required employer contributions, and did not contribute the required safe harbor contributions to the account of each eligible participant.
The suit seeks to recover lost earnings on the contributions, remove Martin as the plan fiduciary, and appoint an independent fiduciary to terminate the plan and distribute its assets. The suit also asks the court to permanently bar Martin from serving as a fiduciary to any ERISA-covered employee benefits plan in the future.
The cardiology clinic that operated the retirement plan ceased operations in July 2006.
The case is:
Chao v. Cardiovascular Specialties P.C.
Civil Action Number 2:08-cv-02700-JPM-tmp
The second case involves a massive $8.6 million settlement out of New York:
"U.S. Labor Department recovers $8.6 million for workers in settlement involving Agway 401(k) plan in New York"New York – The U.S. Department of Labor has obtained a settlement restoring $8,590,000 to participants of the Agway Inc. 401(k) plan in DeWitt, New York, and barring plan officials and the board of directors from service to employee benefit plans for one to two years unless they complete fiduciary training. The defendants also agreed to pay a civil penalty of $859,000 plus interest to the Labor Department.
“This $8.6 million recovery is a victory for the workers whose retirement savings were grossly mismanaged,” said Secretary of Labor Elaine L. Chao.
The department’s lawsuit resolved by this settlement alleged that 47 members of the investment committee, administration committee and the Agway board of directors violated the Employee Retirement Income Security Act (ERISA) by allowing the 401(k) plan and its participants to invest in overpriced securities of Agway. The investment committee allegedly failed to investigate the prudence of investing in Agway securities, to determine the fair market value of securities acquired by the plan (which was set by Agway), and to monitor and divest the plan’s holdings in the securities.
In addition, the administration committee allegedly allowed Agway and the plan to give false and misleading information to participants about the investments in Agway securities, while the board of directors failed to oversee the activities of plan fiduciaries. Some of the defendants included a company attorney, the director of trust investments and the chief executive officer of Agway.
Agway Inc. filed for Chapter 11 bankruptcy in October 2002. The 401(k) plan covered 4,080 participants as of June 30, 2002. The plan held approximately $48 million in Agway securities and $2 million in cash reserves. An independent fiduciary, Fiduciary Counselors Inc., was appointed in 2004 to manage the plan and brought its own separate lawsuit.
The settlement, entered in the U.S. District Court for the Northern District of New York, was investigated by the Boston Regional Office of the Labor Department’s Employee Benefits Security Administration (EBSA).
The case is:
Chao v. Agway Inc. Employees’ 401(k) Thrift Plan ERISA Litigation - formerly Chao v. Magnuson
Civil Action Number 5:06-CV-1199
The last one is an interesting lawsuit filed by the EBSA against a California-based RIA, Zenith Captal:
"U.S. Labor Department sues California investment advisor and executives to recover losses and hidden fees charged to employee benefit plans"
San Francisco – The U.S. Department of Labor has sued Zenith Capital LLC of Santa Rosa, California, and its executives for allegedly investing the assets of 13 retirement plan clients in the hedge fund Global Money Management LP while receiving undisclosed incentive fees from the hedge fund’s sponsor and manager.
The lawsuit alleges that Zenith Capital and executives Rick Lane Tasker, Michael Gregory Smith and Martel Jed Cooper violated their fiduciary obligations under the Employee Retirement Income Security Act (ERISA). The defendants allegedly made investment decisions for their ERISA plan clients. From April 1999 to September 2003, the defendants caused the plans to invest in Global Money Management and received undisclosed incentive fees from LF Global Investments LLC, the general partner and manager of Global Money Management.
In 2004, Zenith Capital LLC was a registered investment advisor with 1,214 clients and approximately $538 million in assets under management. In addition to paying Zenith incentive fees not disclosed to the 13 ERISA plan clients, LF Global held an ownership interest in Zenith. The U.S. Securities and Exchange Commission has frozen the remaining assets of Global Money Management and secured the appointment of a receiver.
The Labor Department’s suit seeks a court order requiring the defendants to restore all losses owed to the plans, requiring them to undo any transactions prohibited by law and permanently barring them from serving in a fiduciary or service provider capacity to any employee benefit plan governed by ERISA. The suit was filed in the U.S. District Court for the Northern District of California.
“We will vigorously pursue investment advisors who try to line their own pockets by illegally steering pension investments. Fiduciaries must invest solely in the interests of the workers to whom these funds ultimately belong,” said Bradford P. Campbell, assistant secretary for the Labor Department’s Employee Benefits Security Administration (EBSA).
The suit resulted from an investigation conducted by the San Francisco Regional Office of EBSA as part of EBSA’s Consultant Adviser Project. Employers and workers may contact EBSA’s San Francisco office at 415.625.2481 or toll-free at 866.444.3272 for help with problems relating to private sector pension and health plans. In fiscal year 2007, EBSA achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.
Zenith Capital LLC, Civil Action Number C-08-4854 (EMC)
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