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ERISA Alleges Ponzi Scheme Loses Over $1 Million

A trustee of a Hawaiian concrete company's profit-sharing plan has been accused of mismanaging funds by the Department of Labor, Employee Benefits Security Administration. Per claims by the EBSA, the president of Reef Development of Hawaii, Inc., who was managing the profit-sharing plan, was reckless in his investments. The result was over $1 million of lost funds: $700,000 in principal and around $303,000 in lost interest.

The investor had invested $550,000 in a failing Texas business that went bankrupt, and allegedly was unveiled as a Ponzi scheme. Another $950,000 was invested in a hotel restoration project. That project ended in foreclosure.

A consent judgment has been made for the concrete company and trustee. The trustee is ordered to restore losses in the amount of over $463,000 to the plan afforded to nonfiduciary participants. In addition, he will have to pay over $92,000 in penalties, which is assessed at 20 percent of the recovery.

The trustee is also banned from serving as trustee for any employee benefit plans in the future. Once the funds are restored, the funds will be disbursed and the plan terminated. As president of the company, this could be considered employee misconduct.

However, there could be more to the story than meets the eye, and if we were to speak to the attorney for the trustee, we might hear that the trustee invested the funds with good intentions and just made some bad choices. Nevertheless, a trustee is required to follow guidelines set by the Employee Retirement Income Security Act of 1974, which provides rules for protecting employee benefit plans. Since a judgment was made against the trustee, he apparently was found guilty of misuse of the funds.

Texas attorneys who specialize in employment law can represent clients or employers in lawsuits regarding retirement or pension plans. Bad investments are not always from illegal acts, but may just be poor judgment or a bad turn of the economy.

Source: planadviser.com, "Trustee to Restore Profit-Sharing Assets" Kevin McGuinness, Dec. 20, 2013

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