DOL SUES SAN FRANCISCO BANK OVER HANDLING OF EMPLOYEE ASSETS

FROM:  U.S. LABOR DEPARTMENT 

US Department of Labor sues San Francisco's California Pacific Bank
Nearly $1.4 million in employee stock ownership assets allegedly mismanaged

SAN FRANCISCO — The U.S. Department of Labor has filed a lawsuit against San Francisco's California Pacific Bank and four of its directors. The complaint alleges that the bank, its CEO and three additional fiduciaries of the bank's Employee Stock Ownership Plan mismanaged plan assets resulting in potential plan losses totaling approximately $1.4 million. The suit asks the court to require the fiduciaries to restore all losses they caused to the plan.

The department alleges that after terminating the ESOP in 2010, the fiduciaries violated the Employee Retirement Income Security Act by failing to liquidate and distribute plan assets in cash to plan participants as required. Because the bank is not a publicly traded company, participants were left with shares of the company's stock they could not easily liquidate for cash, if at all.

Agency investigators determined that the participants would have received approximately $1.24 million if the plan's 97,237 shares had been liquidated and distributed in cash at their assessed December 2009 value. The lawsuit also alleges that in 2011, $81,407 was improperly diverted to the bank, and in 2012, the fiduciaries improperly transferred nearly $70,000 in plan assets to the bank. Finally it is alleged that the bank also held plan assets in non-interest bearing accounts, making assets available for bank use without charge and without accruing interest on the funds for the benefit of the plan.

The complaint names California Pacific Bank CEO and board member Richard Chi, who served as the plan administrator and a plan trustee. Also named are board members and trustees Akila Chen, Kent Chen, and William Mo. The suit asks the court to permanently remove all four as plan fiduciaries and to appoint an independent fiduciary with control over the plan and its assets. The independent fiduciary would administer the liquidation and termination of the plan. The complaint also seeks to permanently enjoin the defendants from ever serving, directly or indirectly, as a fiduciary or service provider with respect to any employee benefit plan subject to ERISA, and to require them to disgorge to the plan any financial benefits they realized as a result of their violations.

ALLEGED VIOLATOR OF EMPLOYEE RETIREMENT INCOME SECURITY ACT RECEIVES INJUNCTION

FROM:  U.S. DEPARTMENT OF LABOR
US Department of Labor obtains preliminary injunction against Matthew D. Hutcheson and Hutcheson Walker Advisors LLC
WASHINGTON — On June 13, the U.S. District Court for the District of Idaho granted the U.S. Department of Labor's motion for preliminary injunction against Matthew D. Hutcheson and Hutcheson Walker Advisors LLC. The court found that the department had "demonstrated the type of immediate and irreparable injury necessitating entry of a preliminary injunction."

On May 15, the department filed a complaint in the same court against Hutcheson and others alleging that Hutcheson had violated the Employee Retirement Income Security Act. The complaint alleged that, toward the end of 2010, Hutcheson used more than $3.2 million in retirement plan savings of workers from multiple employers for his own personal benefit and in an attempt to purchase an interest in the Tamarack Resort, a failed ski and golf resort in Idaho.

Hutcheson's alleged misconduct has left the affected retirement plans without sufficient funds to pay participants all the benefits owed to them. Hutcheson also faces a separate criminal indictment, filed by the U.S. Department of Justice in the same court on April 10, in connection with the same transaction and others. Concurrent with its civil complaint, the department filed a motion for a temporary restraining order and preliminary injunction, seeking removal of defendants Hutcheson and Hutcheson Walker Advisors as fiduciaries of the Retirement Security Plan and Trust, formerly known as the Pension Liquidity Plan and Trust. The secretary of labor also requested the appointment of Jeanne B. Bryant of Receivership Management Inc. as independent fiduciary to the Retirement Security Plan and Trust and the plans. On May 16 the court granted the secretary's motion for a temporary restraining order and took the motion for preliminary injunction under advisement. Today's order is the court's granting of the injunctive relief sought by the department.

In addition to Hutcheson and Hutcheson Walker Advisors LLC, defendants in the secretary's action include Green Valley Holdings LLC and the Retirement Security Plan and Trust.

DEFUNCT CONSTRUCTION COMPANY ORDER TO RESTORE $520,000 TO RETIREMENT PLAN

FROM U.S. DEPARTMENT OF LABOR
Judge orders defunct California construction company to restore nearly $520,000 to employee retirement plan following US Labor Department lawsuit
Explore General failed to remit workers’ fringe benefits
SAN FRANCISCO — Fresno-based Explore General Inc. and Jaime M. Gonzalez have been ordered to restore $519,601 to the company's 401(k) profit-sharing plan, according to the terms of a judgment and order entered in the U.S. District Court for the Eastern District of California.

The judgment and order resolve a lawsuit that was filed by the U.S. Department of Labor based on an investigation by its Employee Benefits Security Administration. The suit alleged that the defendants failed to pay required fringe benefits to the plan and breached their fiduciary duties under the Employee Retirement Income Security Act by not administering the plan solely in the best interests of participants. At the time of the violations, Gonzalez was the owner and president of the company.

Chief Judge Anthony W. Ishii found that the now-defunct construction company was required to pay its workers an hourly prevailing wage rate, including a fringe benefit for each participant in the form of contributions to the retirement plan, when it was contracted to perform work on projects financed by government agencies. The company was paid in full by the agencies for its work, including fringe benefit amounts, and certified that it was sending the fringe benefits to the plan. However, the company failed to remit more than $300,000 to the plan, choosing instead to use the money for general operating expenses. In addition to that amount, the judge's order requires the company to restore lost earnings to the plan.

"Retirement savings are a vital part of ensuring a steady income after we leave the workforce, which is a key reason that Congress chose to give them special protections," said Phyllis C. Borzi, assistant secretary of labor for employee benefits security. "Unfortunately, the individuals entrusted with protecting this plan violated those safeguards."

TRIBUNE CO. EMPLOYEES GET BACK $32 MILLION FOR STOCK OWNERSHIP PLAN AND EXPENCES

The following excerpt is from the Department of Labor website:

“WASHINGTON — The U.S. Department of Labor's Employee Benefits Security Administration has announced that the Tribune Co., GreatBanc Trust Co. and various insurance carriers have completed funding of a global settlement in the amount of $32 million to be allocated among the Tribune Employee Stock Ownership Plan's participants, and to pay for legal and administrative expenses. The settlement is with, among others, the department and the plaintiffs in a private class action lawsuit, and resolves the department's claims of violations of the Employee Retirement Income Security Act.

"This settlement ensures that the Tribune Employee Stock Ownership Plan's participants and beneficiaries will be able to receive the benefits that are rightfully theirs," said Secretary of Labor Hilda L. Solis. "I am pleased that participants' hard earned retirement savings have been returned."

"The fulfillment of this settlement is good news for participants in the Tribune Employee Stock Ownership Plan," said Phyllis C. Borzi, assistant secretary of labor for employee benefits security. "It is the culmination of my agency's commitment and extreme hard work in this case to ensure that the employees' contributions to the plan are handled with the utmost of care according to the law and according to what is right."

On Jan. 30, 2012, the U.S. District Court for the Northern District of Illinois approved the global settlement agreement, which had received prior approval in October 2011 by the U.S. Bankruptcy Court for the District of Delaware. In accordance with the global settlement agreement, the department has concluded its investigation of the plan.

EBSA initiated an investigation of the plan to review its 2007 purchase of Tribune Co. stock for $250 million and the roles played by the plan's fiduciaries, the company and the plan's trustee, GreatBanc Trust Co. The department claimed that the company failed to act prudently and in participants' best interests when it engaged in the ESOP transaction. Additionally, the department claimed that the ESOP transaction was prohibited, a claim consistent with the findings of the district court in the private plaintiffs' action.
As part of its 2007 corporate re-structuring, the Tribune Co. became a privately-held entity owned by the plan. In September 2008, a class action lawsuit was filed on behalf of the plan's participants. While initially filed in California, the case was moved to the Northern District of Illinois in November 2008. In December 2008, the Tribune Co. and some of its subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The department filed claims in the company's bankruptcy proceedings and objected to confirmation of plans to reorganize it. These matters were resolved as part of the global settlement agreement. As of Dec. 31, 2010, the Tribune ESOP had 13,020 participants. The settlement amount has been deposited into an independently managed settlement account.”