Adviser Ordered to Restore Plan Losses

An investment adviser has been ordered to restore plan losses, incentive fees and penalties for several employee benefit plans.

The U.S. Department of Labor (DOL) obtained approval of four consent judgments by the U.S. District Court for the Northern District of California in which Zenith Capital was ordered to pay $602,018 in restitution for plan losses and restoration of the improper incentive fees, plus lost opportunity costs and penalties payable to the department, and three individual defendants were ordered to restore $503,385 in plan losses, incentive fees and penalties.

In addition, the three individuals are permanently barred from serving or acting as discretionary fiduciaries, investment managers, or trustees or administrators to a plan covered by the Employee Retirement Income Security Act (ERISA). The consent orders require the defendants to meet certain disclosure and training requirements in order to serve as consultants or investment advisers to ERISA-covered plans.

The defendants named in the case of Harris v. Zenith Capital LLC are Rick Lane Tasker, Martel Jed Cooper and Michael Gregory Smith, individually and as fiduciaries and service providers. Zenith Capital LLC, an investment advisory firm located in Santa Rosa, California, was also named as a defendant in the case.

According to the DOL’s Employee Benefits Security Administration (EBSA), the defendants were alleged to have breached their fiduciary duties and engaged in prohibited transactions when they placed 13 employee benefit plans into Global Money Management (GMM), a hedge fund that collapsed and went bankrupt.

The DOL claimed Zenith Capital and the individual defendants placed the plans in the high-risk hedge fund despite the fact that the plans were not qualified, accredited investors, and failed to conduct prudent due diligence on GMM or its suitability as an investment for the plans. They also failed to disclose GMM’s ownership interest in Zenith Capital and their receipt of incentive fees from GMM for the plans that it placed into GMM. The general partners of GMM were convicted of mail and wire fraud in connection with GMM.

The full text of the consent judgment and order (docket number: 3:08-cv-04854-EMC) can be found here.