Compliance March 27, 2018

TPA Accused of Stealing Assets From Retirement Plans

Vantage Benefits, a TPA and recordkeeper, has already been ordered to restore funds to one 401(k) plan; now a new lawsuit accuses it of stealing funds from MBA Engineering's 401(k) and cash balance plans as well as approximately 20 others.

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MBA Engineering, Inc., as sponsor and administrator of the MBA Engineering, Inc. Employees 401(k) Plan and the MBA Engineering, Inc. Cash Balance Plan, and the plans’ trustee have filed a lawsuit against Vantage Benefits Administrators, Inc., Jeffrey A. Richie, Wendy K. Richie and Matrix Trust Company for breach of Employee Retirement Income Security Act (ERISA) fiduciary duty, as well as other charges. Vantage benefits serviced as third-party administrator (TPA) and recordkeeper for the plans.

According to the complaint, the Vantage defendants stole approximately $2,269,653.43 in retirement assets from the participants of the plans. The Vantage defendants misappropriated the plans’ assets through 35 fraudulent transfers made by Matrix to Vantage Benefits over the course of 12 months. Matrix made these transfers of plan assets directly to Vantage Benefits without any direction or authorization of any kind from MBA or the plans’ trustee.

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The lawsuit says that prior to making the fraudulent transfers to Vantage Benefits, Matrix took possession and control of millions of dollars of assets of the plans without there being any written, or even oral, agreement between Matrix and the plaintiffs or the plans. The plaintiffs allege that by holding the assets of the plans without any authorization from the plaintiffs and by making the transfers of assets of the plans to Vantage Benefits without any authorization or direction by plaintiffs, Matrix exercised authority and control over the assets of the plans and held fiduciary status as to the plans under ERISA.

The complaint states that Matrix knew that all of the 35 fraudulent transfers were made to the same business bank account held in the name of Vantage Benefits itself, and not in the name of the plans, and that the transfers depleted nearly the entire multi-million dollar account balance held in the names of the plans at Matrix. Many of the transfers used fake participant names and Social Security numbers, and the nature of the transfers violated the terms of the plans.

In addition, the lawsuit claims, “Upon information and belief, Matrix made similar transfers to Vantage Benefits of assets totaling more than $11 million from the accounts of approximately 20 other retirement plans.”

Matrix never informed the plaintiffs that the transfers were being made, never provided the plaintiffs with the monthly trust account statements it produced for the plans and never communicated at all with the plaintiffs either orally or in writing. There was never any agreement between the plaintiffs and the Vantage defendants that authorized the Vantage defendants to instruct or direct Matrix to make the transfers from the plan to Vantage Benefits. In addition, the Vantage defendants disguised their fraud from plaintiffs and the plans’ participants for nearly a year by falsifying plan participant account statements and participant-accessible website information to make it appear that participant account balances were whole and accurate.

The lawsuit is seeking repayment of the assets stolen by the Vantage defendants and “in light of the depravity of the Vantage Defendants’ fraudulent scheme, Plaintiffs seeks exemplary damages against the Vantage Defendants based on their outright fraud.”

Notably, in a previous lawsuit against Vantage Benefits brought by Caldwell and Partners, Inc., as sponsor of and on behalf of the Caldwell and Partners, Inc. 401(k) Plan, a U.S. District Court entered a default judgment and ordered Vantage Benefits and Jeffrey A. Richie to restore $10,170,452.00 for actual damages, plus interest to the Caldwell and Partners plan, and ordered them to pay $297,836.75 for attorneys’ fees and costs.
Compliance March 27, 2018

NAFA Drops Its Fiduciary Rule Challenge in DC Circuit

Following a broadly structured decision by the 5th U.S. Circuit Court of Appeals to vacate the DOL fiduciary rule expansion, the National Association for Fixed Annuities decided its own appellate challenge has been made unnecessary.

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This week the National Association for Fixed Annuities (NAFA) Board of Directors announced it is withdrawing its appeal to the U.S. Circuit Court of Appeals for the District of Columbia of an unsuccessful lawsuit challenging the Department of Labor fiduciary rule expansion.

The lawsuit had previously experienced multiple defeats before the district court, and the DC Circuit Court had flatly denied to grant an emergency preliminary injunction prior to its hearing of the appeal of the matter by NAFA. Because of this, prior to the show-stopping decision by the 5th U.S. Circuit Court of Appeals to entirely vacate the fiduciary rule expansion, it appeared the NAFA challenge would do no better before the higher court. In fact, the D.C. Circuit strongly rebuked NAFA’s request for an emergency injunction to halt the rulemaking from taking effect next April. The denial comprised just a few short sentences, suggesting NAFA had no reasonable claim to an injunction.

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Now that’s all history, and in a new filing with the U.S. Court of Appeals for the D.C. Circuit, NAFA and the United States Department of Justice agree to a voluntary dismissal of the appeal. NAFA directly acknowledges its decision comes on the heels of the March 15 ruling by the 5th Circuit, which again, surprisingly vacated the fiduciary rule in its entirety.

“We are very pleased the Fifth Circuit understood the harms the fiduciary rule created for middle-American retirement savers. This ruling vindicates both NAFA’s and the Fifth Circuit plaintiffs’ chief concerns, and, as a result, we see no reason to continue to pursue our litigation in another federal circuit court,” explains NAFA Executive Director Chip Anderson.

Here’s how NAFA summarizes the complex legal story leading up to this point: “NAFA brought its challenge to the fiduciary rule nearly two years ago in the D.C. District Court, while the Chamber of Commerce and several other trade organizations brought a similar challenge in the Northern District of Texas. The lower courts in both cases ruled in favor of DOL (upholding the rule), but, on appeal, the Chamber prevailed in the Fifth. NAFA believes the Fifth Circuit decision renders its case moot.”

Anderson adds that NAFA “will focus our energies on promoting insurance regulations that properly recognize differences among financial products and the way those products are delivered.” He indicates NAFA will “continue to engage with industry stakeholders, the NAIC, and other state and federal policymakers.”

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