Compliance July 12, 2017

Businessman Ordered to Pay Back ERISA Plan Involved in Ponzi Scheme

The ERISA plan invested roughly $1.9 million of plan assets from July 2010 through December 2011 in the investment company, Midwest Green Resources.
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A multi-agency federal and state investigation has led to the guilty plea and imprisonment of an Ohio businessman who orchestrated a Ponzi scheme that included the theft of $1.9 million from an employee benefit plan, according to the Department of Labor (DOL).

The Department’s Employee Benefit Security Administration (EBSA) joined the federal investigation in November 2014 due to an employee benefit plan investments. The founder of Midwest Green Resources pleaded guilty to conspiracy to commit mail and wire fraud and theft or embezzlement from an employee benefit plan in February of this year.

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The EBSA investigation revealed that a benefit plan, covered by the Employee Retirement Income Security Act (ERISA), invested roughly $1.9 million of plan assets from July 2010 through December 2011 in the investment company, Midwest Green Resources. Within days of the investment, the founder diverted the plan assets for his and his wife’s personal use, the use of other entities controlled by him, and to pay previous investors, including personal investments of plan participants. In August of 2012, plan participants received investment payouts from certain monies received from other Midwest Green Resources investors not related to the plan. 

His wife operated several companies in the area that were allegedly funded by the Ponzi scheme. He and his wife were indicted in October 2015. Over the course of at least five years, the couple and others orchestrated a Ponzi scheme in the Dayton, Ohio, area in which nearly 480 investors lost more than $20 million. The founder of Midwest Green Resources received $70 million in investment funds in total, including $1.9 million in plan assets. He has been ordered to pay more than $32 million in restitution.

His wife pleaded guilty to one count of mail fraud on April 4, 2017, and is scheduled for sentencing on August 2, 2017.

More information is here.
Compliance July 12, 2017

ERISA Lawsuit Filed Against MFS

The complaint alleges fiduciary breaches of ERISA with regards to MFS offering its proprietary funds in its 401(k) plans.
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A participant in the Massachusetts Financial Services Company Defined Contribution Plan and the Massachusetts Financial Services Company MFSavings Retirement Plan has filed a lawsuit under the Employee Retirement Income Security Act (ERISA), alleging Massachusetts Financial Services Company (MFS), its retirement committee and retirement investment committee breached their fiduciary duties and engaged in prohibited transactions with respect to the plans in violation of ERISA.

The complaint says, “For financial service companies like MFS, the potential for imprudent and disloyal conduct is especially high, because the plan’s fiduciaries are in a position to benefit the company through the plan’s investment decisions by, for example, filling the plan with higher-cost proprietary investment products that a disinterested fiduciary would not choose.” The suit claims the defendants did just this, using the plans “as an opportunity to promote MFS’s mutual fund business and maximize profits at the expense of the plans and their participants.”

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“We stand firmly behind the investment offerings in our employee retirement plans and our process in selecting these options,” Dan Flaherty, AVP and senior public relations manager at MFS, told PLANADVISER.

According to the complaint, the defendants loaded the plans primarily with MFS’s investment offerings, without investigating whether plan participants would be better served by investments managed by unaffiliated companies. The lawsuit contends the retention of these proprietary mutual funds has cost plan participants millions of dollars in excess fees. For example, it says, in 2012, the plans’ total expenses were approximately 91% higher than the median total costs for retirement plans with between $500 million and $1 billion in assets. The plans had a combined $515,246,820 in assets as of the end of 2012.

The lawsuit also accuses the defendants of failing to select the least expensive share class available for the plan’s designated investment alternatives, failed to investigate the use of separate accounts and collective trusts as alternatives to mutual funds, and failed to monitor and control recordkeeping expenses. It says the defendants also failed to remove poorly performing investments from the plan.

The complaint not only calls out MFS proprietary funds, but also Russell LifePoints Mutual Funds offered in the plans for which an MFS affiliate served as a subadviser for numerous funds that comprised a significant percentage of the Russell funds.

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