Compliance September 6, 2022

DOL Sues Couple, Alleges They Lost Millions in Profit-Sharing Plan

A prominent New Jersey couple faces allegations that they invested plan assets in companies in which they had significant financial interest and in ways that would personally benefit them.  

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The Department of Labor has brought a new complaint against a couple and their company under the Employee Retirement Income Security Act for alleged fiduciary breaches.

Under the direction of Secretary of Labor Marty Walsh, the DOL filed the lawsuit in the District Court for the District of New Jersey against the New Jersey-based design firm InterArch, its CEO, Shirley Hill, and her husband, Vernon Hill, for mismanagement of plan assets that allegedly resulted in significant losses.

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The lawsuit alleges that between August 2016 and June 2020, the defendants acted as fiduciaries of the InterArch profit-sharing plan and invested as much as 70% of the plan’s assets in the stock of Metro Bank PLC, where Vernon Hill was the chairman. Additionally, the defendants allegedly invested at least 13% of the plan’s assets in the stock of Republic First Bancorp Inc., where Vernon Hill was a senior leader.

The defendants are accused of failing to diversify the plan’s holdings during this period, even as the share prices for both Metro Bank and Republic Bank fluctuated significantly. The defendants only sold the plan’s shares in Metro Bank in June 2020, when they terminated the plan. According to the complaint, they never sold the plan’s Republic Bank stock.

According to the DOL, Vernon co-founded Metro Bank in 2010 and served as its nonexecutive chairman of the board from its founding through December 2019. During this period, he owned a significate stake in the bank. In 2010, he allegedly acquired an equity position in Metro Bank for the plan at InterArch.

In March 2016, Metro Bank went public and began trading on the London Stock Exchange. It was also being traded in the U.S., the complaint states. By the end of 2016, Metro Bank shares made up 64% of the InterArch plan’s portfolio, and the defendants maintained the stock at 59% or more through the remainder of 2016 and into 2017—when, by the end of February, the stock made up 65% of the plan’s portfolio.

By the end of February 2018, the plan’s assets had a market value of over $18.6 million. But between March 2018 and July 2019, the complaint states, the shares of Metro Bank began a steady and dramatic decline, with share prices dropping from $57.13 to $4.47. Even as the stock declined, the defendants acquired an additional 166,374 shares for the plan between 2018 and 2019.

The defendants did not sell any Metro Bank shares for the plan until June 2020, the complaint states. Over the course of two days, they sold all of the plan’s shares in Metro Bank for $731,470.42, which was over $17.8 million less than the shares’ peak value.

The complaint states that Vernon Hill also worked for Republic Bank, joining in 2008 and becoming CEO in 2019. In June 2010, he purchased 500,000 Republic Bank shares for the plan, making up a third of the plan’s portfolio.

The price of Republic Bank’s shares peaked in June 2017, and then began a steady decline through June 2020. Over this period, the Republic Bank share price dropped from $9.75 to $2.05, the complaint states. As of the end of June 2017, Republic Bank shares made up 17.5% of the plan’s assets, with a market value of $4.6 million.

Despite the decreasing value of the Republic Bank Stock, the defendants did not take any steps to sell any of the plan’s shares during the three-year period, the complaint states. The Republic Bank shares were ultimately transferred out of the plan in August 2020, at which point they had a market value of $1.1 million, more than $3.4 million less than their peak value.

As CEO of InterArch and sole owner of the firm, Shirley Hill was also the plan’s fiduciary and sole named trustee, and had authority to administer and manage the plan, the complaint states. The firm provided plan participants with a release stating that Vernon Hill would act as fiduciary of the plan. According to the complaint, his wife relied heavily on his investment advice.

“Shirley Hill relied on Vernon Hill’s investment advice in investing the plan’s assets to such an extent that Vernon Hill exercised effective control over the plan’s assets,” the complaint states. “Through his investment advice to Shirley Hill, Vernon Hill caused the plan’s assets to be invested in ways which would personally benefit him.”

Under ERISA, fiduciaries are required to act prudently and loyally in the sole interest of plan participants and beneficiaries and discharge their duties with respect to plans by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.

The lawsuit alleges the defendants failed to do this when they invested large proportions of the plan’s assets in the stock of companies they had significant interest in; failed to monitor the investments and assess whether those were consistent with their duties of loyalty and prudence; and allowed the plan’s assets to be invested in a non-diversified manner, with as much as 70% of the plan’s assets in a single stock and an additional 13% or more in a second single stock.

The DOL is asking that the court order InterArch, Shirley Hill and Vernon Hill to restore all losses, plus interest and/or lost opportunity earnings, incurred by the plan as a result of their violations of ERISA. They are also asking to permanently bar Shirley and Vernon Hill from serving as fiduciaries or service providers to any ERISA-covered plan.

A request for comment about the lawsuit has not yet been returned by the Hills.

Deals & People September 2, 2022

Retirement Industry People Moves

Triton Pacific Securities expands RIA focus; Millennium Trust names chief marketing officer; Commonwealth hires deputy general counsel and chief privacy officer; and more.

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MetLife Investment Management to Acquire Affirmative Investment Management

MetLife Investment Management, the institutional asset management business of MetLife Inc., has announced that it has entered into a definitive agreement to acquire Affirmative Investment Management.

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AIM is a global environmental, social and corporate governance impact fixed-income investment manager. The firm has capabilities in impact investing, verification, reporting and engagement. As of June 30, its assets under management were $1.01 billion.

The acquisition is subject to customary closing conditions, including regulatory approval. According to the firms, the acquisition seeks to advance MIM’s ESG investment and reporting capabilities as it aims to deliver client solutions and long-term risk-adjusted returns.

“MIM will maintain its fundamental investment processes, and AIM brings us additional capabilities to evaluate sustainability and risk considerations across our core competencies in public fixed income, private fixed income and real estate,” says Steven Goulart, president of MIM and executive vice president and CIO for MetLife.

Commonwealth Hires Deputy General Counsel and Chief Privacy Officer

Commonwealth Financial Network has announced that Michelle Kelley is joining the firm as senior vice president, deputy general counsel and chief privacy officer. In this newly created position, Kelley will lead Commonwealth’s legal department and provide counsel on cybersecurity and privacy laws, partnering closely with Commonwealth’s information security team.

Kelley joins Commonwealth from LPL Financial and brings regulatory counsel to support Commonwealth’s growing efforts on fee-based business. With the increasingly necessary focus on data security and cybersecurity, Kelley will enhance Commonwealth’s privacy and data security alongside the firm’s chief information security officer, Mukund Ravipaty. She will report to Peggy Ho, senior vice president, general counsel and chief risk officer.

Kelley will provide guiding counsel to the firm and executive management team on strategic initiatives and regulatory matters. She will oversee the team responsible for commercial agreements, customer complaints, litigation and arbitrations, regulatory enforcement matters and contracts and vendor agreements.

Kelley graduated from Colgate University. She received her law degree from Boston College Law School and began her career as an associate at Ropes & Gray LLP. For the past 16 years, she has held various roles at LPL Financial, most recently as senior vice president, government relations, chief privacy officer and associate general counsel.

Millennium Trust Names Chief Marketing Officer

Millennium Trust Company has announced that it has hired Michelle Spellerberg as chief marketing officer and a new member of the firm’s executive leadership team. Spellerberg joins after more than eight years with Alliant, a digital credit union, where she held the position of vice president and chief marketing officer.

This new hire comes on the heels of Millennium Trust’s acquisition of PayFlex, a provider of health savings accounts and other consumer-directed benefits solutions, from CVS. The deal, completed in June, positions Millennium Trust to provide a full array of financial wellness services for clients at every stage of life.

Triton Pacific Securities Expands RIA Focus

Triton Pacific Securities has recently expanded its registered investment adviser capital markets team, adding Katie Hubbard as senior vice president of RIA channel and Western capital markets. Hubbard brings over two decades of capital-raising experience to the firm in this newly created role.

Hubbard will be joining Andrew Hurvitz, vice president of Eastern markets, and Kevin Kennedy, associate vice president.

In Hubbard’s previous role as senior manager of wealth advisory at Empower, she managed 40 retirement and wealth advisers. Prior to Empower, Hubbard was the national sales manager and partner at a large national registered investment adviser.

Hubbard graduated from the University of Denver with a degree in real estate and construction management and earned a master’s degree in finance from the University of Colorado. Hubbard currently holds her Series 7, 63, 65, 24 and SIE FINRA licenses.

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