Compliance April 12, 2012

Pension Fund Trustee Pleads Not Guilty to 31-Count Indictment

Independent fiduciary and plan trustee Matthew Hutcheson of Eagle, Idaho, pleaded not guilty on Thursday in U.S. District Court in Boise.
Reported by

Hutcheson, an early member of the advisory board of BrightScope, the retirement plan ratings service, was independent fiduciary and trustee of the G Fiduciary Retirement Income Security Plan, also known as the Benefit Guard 401(k) Plan, a multiple-employer plan (MEP).

He was taken into custody by the FBI Wednesday, the same day a federal court in Idaho unsealed a 31-count indictment with 17 counts of wire fraud and 14 counts of theft of more than $5 million in pension plan assets.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

From January 2010 to December 2010, Hutcheson allegedly directed the plan’s recordkeeper to send 12 wire transfers, totaling more than $2 million, from the plan’s account held at Charles Schwab to accounts controlled by Hutcheson. He is also accused of having diverted $3.2 million from another plan, the Retirement Security Plan and Trust.


 

 

 

(Cont'd)

According to the indictment, the recordkeeper, Aspire Financial, was instructed to report, for each transfer, on participants’ plan statements that the money was invested in an investment called “TDA Mid-Term Interest-Bearing (Cash Equiv[alent]).”

Typically, the same day the assets were wired from Charles Schwab, Hutcheson allegedly made payments to a variety of vendors and entities, including an Eagle, Idaho, contractor, and a car dealership and motorcycle dealership, both in Boise, Idaho, for two all-terrain vehicles and three automobiles, including a 2004 BMW convertible.

Approximately $892,000 was allegedly paid from Hutcheson’s account for extensive home renovations, including a swimming pool, hot tub, pool mechanical building; a secondary garage, a doghouse, landscaping and fencing, driveways, and construction of a  4,100-square-foot barn (with loft apartment and office space).

Hutcheson is accused of using $366,000 to repay personal loans.

 

Compliance April 12, 2012

Ameriprise Wins Excessive Fees Case

A federal appellate court reversed its stance in a case alleging Ameriprise charged mutual fund investors excessive fees.
Reported by

In its second review of the case, the 8th U.S. Circuit Court of Appeals upheld a district court finding that the plaintiffs, investors in nine mutual funds managed and distributed by Ameriprise, failed to set forth a genuine issue of material fact that the fees Ameriprise charged “were so disproportionately large that they bear no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.”   

The appellate court previously determined that the lower court mistakenly rejected a comparison between fees charged to its mutual fund shareholders—to whom Ameriprise owed a fiduciary duty—and non-fiduciary institutional clients (see “AppellateJudges Send Fund Fee Challenge Back to Lower Court.”) In addition, it instructed the district court to determine whether Ameriprise purposefully omitted, disguised or obfuscated information about the fee discrepancy between different types of clients.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

However, following that decision, the U.S. Supreme Court granted Ameriprise’s petition for certiorari, vacated the 8th Circuit’s opinion, and remanded the case to the appellate court for further consideration in light of the high court’s decision in Jones v. Harris Associates L.P.  In that case, the court found that even if the process of approving the fees was flawed—either because the investment fund board’s process was deficient or because the adviser withheld material information—we must “take a more rigorous look at the outcome” and give less deference to the board’s decision to approve the adviser’s fees (see “HighCourt Sides with Investors in Fee Case.”) 

In the second appeal, the 8th Circuit concluded that, when considered in the light of Jones, the district court’s initial review of the other relevant circumstances and the disputed fees themselves was sufficiently detailed to constitute a “rigorous look at the outcome,” and that there is thus no need to remand for further proceedings. The plaintiffs argue that Ameriprise’s 12b-1 fees violate § 36(b) of the Investment Company Act, but they have failed to show that the fees are outside “the range of what would have been negotiated at arm’s-length in the light of all of the surrounding circumstances.”  

The 8th Circuit’s most recent opinion is here. 

 

«