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U.S. Department of Labor
Employee
Benefits Security Administration
October 2008
Multiple Employer Welfare Arrangements
(MEWAs) provide health and welfare benefits to employees
of two or more unrelated employers who are not parties to
bona fide collective bargaining agreements. In concept,
MEWAs are designed to give small employers access to low
cost health coverage on terms similar to those available
to large employers. For certain employers they represent
the only available option for providing employees with
health care because insurance companies often will not
insure small employers who do not fall within their
desirable risk category.
Although MEWAs can be provided through
legitimate organizations, they are sometimes marketed
using attractive but actuarially unsound premium
structures that generate large administrative fees for the
promoters. In addition, certain promoters will set up
arrangements that they claim are established pursuant to a
collective bargaining agreement and, therefore, are not
MEWAs but legitimate benefit plans free from state
insurance regulations. Often, however, these collective
bargaining agreements are nothing more than shams designed
to avoid state insurance regulation.
States and the federal government
coordinate the regulation of MEWAs pursuant to a 1982
amendment to the Employee Retirement Income Security Act (ERISA).
This dual jurisdiction gives states primary responsibility
for overseeing the financial soundness of MEWAs and the
licensing of MEWA operators. The Department of Labor
enforces the fiduciary provisions of ERISA against MEWA
operators to the extent a MEWA is an ERISA plan or is
holding plan assets. State insurance laws that set
standards requiring specified levels of reserves or
contributions are applicable to MEWAs even if they also
are covered by ERISA.
The Department has devoted significant
resources to investigating and litigating issues connected
with abusive MEWAs created by unscrupulous promoters who
sell the promise of inexpensive health benefit insurance,
but default on their obligations. Particular emphasis has
been put on identifying ongoing abusive and fraudulent
MEWAs, and working to shut down such operations.
To date, the Department has:
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Initiated 758 civil
and 191 criminal investigations and obtained monetary
results of over $212 million. There are currently 68
civil and 50 criminal investigations open.
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Filed 92 civil
complaints.
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Indicted 143
individuals with 112 convictions or guilty pleas.
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Published technical
assistance materials, including a booklet explaining
federal and state regulation of MEWAs.
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Issued numerous
advisory opinions to assist state prosecutors and
regulators to enforce state insurance laws against
MEWAs.
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Convicted
individuals have been sentenced to total prison terms
of approximately 400 years. Most of these
investigations have been jointly investigated with
other agencies, including the Department’s Office of
Labor Racketeering and Fraud Investigations, the FBI,
the U.S. Postal Inspection Service, and the Internal
Revenue Service’s Criminal Investigative Division.
Manufacturing and Industrial Workers Union (MIWU)
Benefit Fund – On March 28, 2007, the Department
filed a complaint against Bryan, Texas-based Manufacturing
and Industrial Workers Union Benefit Fund and against four
trustees of the Paramount, California-based International
Union of Public and Industrial Workers (IUPIW) Canadian
Benefit Fund: William Hope, Gary Couch, Roger “Tim,”
Gue, and Robby Larkin; and Pamela Barlow,
Secretary-Treasurer of the related IUPIW, for their role
in causing the financial collapse and ultimate demise of
the MIWU Fund in 2005. The action was filed in the U.S.
District Court, Northern District of Georgia, Atlanta
Division, in an effort to secure the MIWU Fund assets,
protect the plan participants and halt alleged ongoing
violations of federal law. The Department’s suit alleged
that the defendants mismanaged the Fund by admitting large
groups of participants into uninsured medical plans
without any underwriting and by failing to set
contribution rates sufficient to fund the benefits offered
in violation of ERISA. Further, the complaint alleged that
the IUPIW Fund officials illegally transferred millions in
unprocessed and unpaid claims from the IUPIW Canadian
Benefit Fund in an effort to preserve IUPIW Canadian
Benefit Fund solvency to the detriment of the MIWU Fund.
The MIWU Fund allegedly owes more than $4.8 million in
unadjudicated and unpaid health care claims for
approximately 2000 workers and their families in Georgia,
Illinois, Texas, Arizona and other states. The lawsuit
sought restoration of Fund losses, the appointment of an
independent fiduciary and other equitable relief.
On May 11, 2007, the Department obtained a consent
judgment appointing an independent fiduciary and barring
the defendant from continuing to act in a fiduciary
capacity with respect to any employee health benefit plan
subject to ERISA, including the MIWU Fund. The independent
fiduciary will terminate the MIWU Fund and collect,
marshal, and administer any remaining assets, and will
process and pay claims. Participants with health claims or
questions should contact Betty Cordial, the independent
fiduciary, at (602) 240-6821.
Contractors and Merchants
Association (CMA) and Small and Independent Business
Associates, Inc. (SIBA) – The Department sued a
purported employer association, a health fund trustee, and
the fund’s consultant over alleged imprudent management
of the Manufacturing and Industrial Workers Benefit Fund (MIWU)
of Bryan, Texas. The defendants’ actions allegedly
resulted in more than $3.4 million in unpaid health claims
affecting participants in Arizona, California, Florida,
Georgia, Illinois, Texas and other states.
According to the lawsuit, Raymond
Palombo, Mitchel Coneley, Leonard Steinberg, Contractors
and Merchants Association (CMA), and the Small and
Independent Business Associates Inc. (SIBA) violated the
Employee Retirement Income Security Act (ERISA) by causing
the insolvency of the MIWU health fund and by their
failure to hold the fund assets in trust. The defendants
permitted Palombo to transfer the health claim liabilities
of members of his alleged sham employer association, CMA,
to the MIWU fund. Palombo allegedly diverted plan assets
to benefit him, the defendants and others; improperly set
contribution rates for 880 participants of CMA; enrolled
ineligible individuals in the health fund; and failed to
properly fund the plan.
The MIWU health fund became financially
insolvent in 2005 due to the transfer of CMA members to
the fund. At the time of the improper actions, Palombo was
the president and sole shareholder of CMA, and Steinberg
was the president of SIBA and provided consulting services
to the MIWU health fund through SIBA. Coneley was the fund’s
trustee.
The amended complaint, filed July 2,
2008 in the U.S. District Court for the Northern District
of Georgia in Atlanta, seeks to have the defendants
restore to the fund all losses with interest, undo all
prohibited transactions, offset any claims for benefits
against the MIWU fund, and permanently bar the defendants
from serving in a fiduciary capacity to any ERISA-covered
plan in the future. In related Department litigation, the
court appointed an independent fiduciary to pay health
claims of affected participants and beneficiaries and to
manage the more than $1.9 million in fund assets recovered
by the Department and collected by the independent
fiduciary as of May 2008.
Georgia Plumbers Trade Association for Continuing
Education, Inc. (GPTA) – On March 15, 2007, the
Department filed a complaint in the U.S. District Court
for the Northern District of Georgia, Atlanta Division,
against Marc Meixner, Leslie E. Smith, David Sherman, GPTA
Benefits Group, Inc. and Employers Onesource, Inc. The
plan sponsor, Georgia Plumbers Trade Association for
Continuing Education, Inc. (GPTA), located in Griffin,
Georgia, is a non-profit organization established in 1994
to provide plumbers in the state of Georgia with education
and resources to comply with changing plumbing codes.
The complaint alleges that the defendants mismanaged
the GPTA Health Plan by paying illegal commissions and
fees and by failing to pay plan benefits when due. As a
result, $646,875 in benefits has allegedly not been paid.
The suit seeks a court order requiring that the defendants
restore all plan losses with interest and return any
illegal profits. The suit also seeks to permanently bar
the defendants from serving any employee benefit plan
governed by ERISA in the future and to appoint an
independent fiduciary to manage the plan and its assets.
On January 15, 2008, the Court entered
a consent judgment and order requiring Marc Meixner to
restore $509,624 to the Georgia Plumbers Trade Association
Health Plan. On February 5, 2008, the Department filed a
Complaint against the Georgia Plumbers Trade Association,
Ron Anderson and Windell Peters.
Employers Resource Management, Inc – On March
16, 2006, a final judgment and consent order was filed in
Chao v. Employers Resource Management Company, Inc. (ERM).
ERM, headquartered in Boise, Idaho, sponsors a self-funded
multiple employer welfare arrangement for small employers
located in several states. The consent order requires that
ERM maintain a minimum level of reserves for the payment
of medical claims. ERM has contributed approximately
$588,000 to fund such a reserve pursuant to the agreement
reached with the Department. ERM also agreed to hire
qualified professionals to annually compute the amount the
claims reserves must hold. The settlement also provides
that ERM will forward employer and employee premiums to
the health plan as soon as those monies can be segregated
from its general assets, will separately hold in trust and
account for the health plan’s assets and will use the
plan’s assets only to pay proper claims and expenses.
ERM also agreed to invest the plan’s assets prudently
and reimburse itself only for direct expenses in
accordance with federal law.
Solidarity of Labor Organization International Union
(SOLO) – On January 9, 2006, the District Court for
the Southern District of New York entered a consent
judgment specifically and permanently enjoining Anthony
Pecone from serving as a fiduciary or service provider of
any employee benefit plan and from marketing or selling
participation in employee benefit plans. Pecone’s
employer association, the National Entrepreneurs
Association (NEA), required employers to pay a per capita
fee to NEA for each of their employees in order to obtain
coverage in the Solidarity of Labor Organization
International Union Benefit Fund (Fund). Pecone’s
employer association allegedly diverted approximately $1.3
million in plan assets in the form of employer association
fees from employers seeking health benefits for their
employees from the Fund. The Fund filed for bankruptcy in
the United States Bankruptcy Court for the Southern
District of New York and the Secretary’s Consent
Judgment acknowledged that the bankruptcy trustee of the
Fund would continue to prosecute the claim of alleged
diversion of plan assets against Mr. Pecone in the
adversary complaint filed by the bankruptcy trustee.
ePEO Link, Inc. and Integrated Professional
Insurance Services, Inc. (IPIS) – On December 1,
2005, the Department filed a complaint in the U.S.
District Court, Northern District of Oklahoma, against
ePEO Link, Inc. and Integrated Professional Insurance
Services, Inc. (IPIS) charging those companies with
violating ERISA in managing the ePEO Link Group Accident
and Health ERISA Medical Care Plan, a multiple employer
welfare arrangement (MEWA). Also named in the complaint
were Roger Jeffrey, Jacqueline Holovka, and Frederick Roh,
principals of ePEO Link, a Professional Employer
Organization headquartered in Idaho, and Lon Olmstead,
principal of IPIS, the MEWA's third-party administrator
located in Bakersfield, California.
ePEO Link sponsored the MEWA from April 2001 through
June 2003, at which time they terminated the MEWA leaving
$4.43 million in unpaid health claims. The complaint
alleged that defendants ePEO Link, Jeffrey, Holovka, Roh,
IPIS and Olmstead violated ERISA by, among other things,
failing to ensure proper underwriting, contribution rates,
and reserve levels, failing to obtain appropriate
reinsurance, and failing to require that ePEO Link pay all
amounts necessary to pay benefits. Defendant Olmstead also
was charged with violating ERISA for receiving commissions
from the MEWA's purchase of reinsurance contracts.
On June 19, 2006, the U.S. District Court for the
Northern District of Oklahoma approved the consent order
between the Department and ePEO Link, Inc., Integrated
Professional Insurance Services, Inc. (IPIS), and the
respective principals of those companies. The Consent
Order permanently bars ePEO and its principals, Roger
Jeffrey, Frederick Roh, and Jacqueline Holovka from
serving as fiduciaries or service providers to ERISA
plans. The Consent Order also permanently bars IPIS and
its principal, Lon Olmstead, from serving as fiduciaries
or service providers to ERISA Plans. The consent order is
conditioned on each settling defendant adhering to the
terms of a separate Class Action Settlement Agreement
filed in the matter of Envirosolve, LLC, et al v. ePEO
Link, Inc. et al.
International Union of Public and Industrial Workers
(IUPIW) Canadian Benefit Fund – On November 30,
2005, the Department filed a complaint against the
International Union of Public and Industrial Workers (IUPIW)
Canadian Benefit Fund (Fund) in the U.S. District Court,
Northern District of Georgia (Atlanta Division). The
complaint sought payment of over $1.2 million in unpaid
medical claims, as well as the appointment of an
independent fiduciary to take over operation of the Fund.
The suit also sought to bar the current Fund fiduciaries
from further involvement with any plans covered by ERISA.
The defendants named in the complaint were the Fund and
its fiduciaries, including its four trustees: William Hope
(Hope), Gary Couch, Robby Larkin and Roger Gue, as well as
Pamela Barlow, Secretary-Treasurer of the Petroleum
Workers Union. The complaint alleges that the fiduciaries
repeatedly admitted large groups of participants into the
Fund's self-funded component even though they knew or had
reason to know that many individuals in the groups had
serious and/or chronic health conditions and, therefore,
posed significant risks to the Fund's solvency. Since at
least 2002, the Fund's fiduciaries imprudently failed to
set contribution rates commensurate with the level of
benefits offered and failed to perform any underwriting
activities even when admitting large enrollee groups.
On March 21, 2007, the Department obtained a consent
judgment shutting down the International Union of Public
and Industrial Workers Canadian Benefit Fund. The judgment
also restores $542,727 to pay pending health claims of
more than 2,000 workers and families, removes officials
from their positions with the Fund, and appoints an
independent fiduciary to manage the Fund’s assets of
$762,606, terminate the plan and pay health claims. Plan
officials must pay a civil monetary penalty and are
permanently barred from service to any plan governed by
the Employee Retirement Income Security Act in the future.
Participants with health claims or questions should
contact Betty Cordial, the independent fiduciary, at
602-240-6821.
Riscomp Industries, Inc. – On November 10,
2005, the Department filed a complaint in Minnesota U.S.
District Court against the executives of Riscomp
Industries, Inc. for their imprudent management of the
firm's health plan. The health plan was a multiple
employer welfare arrangement (MEWA) that provided medical,
dental, life and death benefits. The complaint alleges
that Robert Wood, Kurt Wood, and David Nelson, who were
trustees of the plan, violated ERISA by retaining more
than $1.2 million of health plan contributions from
employers and employees in the firm's corporate account.
When Riscomp filed for bankruptcy protection in November
2002, it left over $2.1 million in unpaid claims.
On February 1, 2007, the Department obtained a consent
judgment resolving the Department’s complaint against
Riscomp Industries, Inc., Robert Wood, Kurt Wood, David
Nelson, and the RJ Associates Employee Benefit Plan and
Trust. Under the Judgment, Riscomp, Robert Wood, Kurt Wood
and David Nelson were required to pay $512,313 to resolve
the unpaid health claims of the MEWA, $207,000 to an
independent fiduciary to cover the costs of administering
the claims payments, and $102,463 in ERISA civil
penalties.
Professional Industrial & Trade Workers Union (PITWU)
– On April 28, 2005, the Department filed a complaint
against the Professional Industrial & Trade Workers
Union (PITWU) Health and Welfare Fund, Michael Garnett,
James Doyle, Mark Maccariella, and Cynthia Holloway. The
suit alleges that, while serving as fiduciaries with
respect to the Fund, these individuals violated ERISA’s
exclusive purpose and prudent person provisions. The
complaint further alleges that Doyle, Garnett and
Macariella breached their fiduciary duties by diverting
plan assets from the Fund in the form of commissions,
union dues, administrative and billing fees, and other
non-specified expenses. The complaint alleges that
Holloway breached her fiduciary duties by failing to
monitor the proper application of the Fund's assets by her
three co-defendants as well as by David Weinstein, the
Fund's architect. The complaint also seeks to have the
defendants restore losses to the Fund, permanently enjoin
the defendants from serving in the future as fiduciaries
for ERISA-covered plans, and have the court appoint an
independent fiduciary to administer the Fund.
Midland Services, Inc. – On January 5, 2005,
the Department sued the president of the Nashville-based
Midland Services, Inc. for misusing commissions and
refunds owed to a health plan sponsored by the firm.
Midland was an employee staff-leasing firm that operated a
MEWA for employees leased to client employers.
The suit alleged that Midland and David Starkey
violated ERISA when they received $72,721 in illegal
commissions and refunds of plan contributions, which were
used for their personal benefit rather than to pay
participant claims. The defendants allegedly selected a
succession of service providers to insure the plan and
provide administrative services between 1998 and 2002. In
1999 and 2001, two insurers defaulted on plan payment of
claims. The plan provided health benefits to approximately
469 participants under a re-insurance arrangement. In
1999, Merrion Reinsurance Company, Ltd. failed to pay
$47,373 in benefit claims. North American Indemnity of
Belgium also defaulted on $223,000 in claims in 2001.
On April 20, 2005, a consent judgment was entered
permanently barring David Starkey from service as a
fiduciary, administrator, or service provider of future
ERISA plans. Starkey is further barred from selling or
marketing any health benefit arrangement not licensed in
one of the 50 states.
New Jersey Licensed Beverage Association – On
November 18, 2004, the Department sued the trustees, plan
administrators, and other fiduciaries to the New Jersey
Licensed Beverage Association health plan in Trenton, New
Jersey, for mismanagement of the plan. The self-insured
health plan left participants with more than $6 million in
unpaid health claims. The plan ceased operating in August
2003.
The lawsuit alleged that the defendants violated ERISA
by failing to determine and maintain adequate funding
levels to pay benefits from 1998 to 2003, and did not have
adequate contribution rates to support benefit payments.
The suit names as defendants the New Jersey Licensed
Beverage Association, Inc., plan administrator Midlantic
Healthcare, Inc., and numerous fiduciaries associated with
the plan.
The suit alleged that Midlantic Healthcare, Inc. did
not provide information to the plan trustees and
fiduciaries regarding the financial condition of the plan,
and did not manage the plan in a financially sound manner.
The plan fiduciaries allegedly failed to remove Midlantic
and its principal and did not properly monitor the actions
of the plan administrator. In August of 2003, the plan had
an unpaid claim backlog of $6,220,323.
The New Jersey Licensed Beverage Association, Inc.
sponsored the medical plan for as many as 3,895 employees
who work in bars and restaurants throughout the state of
New Jersey and elsewhere. The plan ceased operating in
August 2003.
On January 5, 2006, Judge Joel A. Pisano for the United
Sates District Court for the District of New Jersey
entered a stipulation and order pursuant to the All Writs
Act that stays all current federal and state court
litigation and enjoins future suits against the plan, its
participants, beneficiaries and fiduciaries for unpaid
medical claims pending resolution of the Secretary’s
suit.
On March 30, 2007, the Department obtained a partial
consent judgment ordering the fiduciaries to make
restitution of $1.5 million to the New Jersey Licensed
Beverage Association Welfare Benefit Plan, less any
applicable ERISA Section 502(1) penalties, and an
additional $150,000 for the court-appointed independent
fiduciary to marshal the plan’s assets, pay unpaid
claims and terminate the plan. The judgment also enjoins
each of the fiduciaries from serving as a fiduciary or
service provider to any ERISA-covered plan based on their
mismanagement of the plan. This judgment concludes the
litigation and follows an earlier Partial Consent Judgment
that was entered last month against Midlantic Healthcare,
Inc., operated by co-defendant Stephan DiTomasso. The
Midlantic Judgment provided for restitution of $600,000.
International Union of Industrial and Independent
Workers Benefit Fund (IUIIW) – On December 13, 2004,
the Department entered into a consent judgment and order
for payment of $840,000 in restitution to the Paramount,
California-based International Union of Industrial and
Independent Workers Benefit Fund (Fund).
In September 2004, the Department had obtained a
preliminary injunction removing the trustees and
permanently barring them from service to the Fund. The
order also terminated the Fund and appointed an
independent fiduciary to manage the Fund’s assets and to
establish a claims procedure for participants.
On April 6, 2004, the Department filed a lawsuit
against the purported union, former plan administrator Oak
Tree Administrators, its owner Cherille Shelp and current
and former trustees Geoffrey J. Beltz, James Miller, David
Wright, and Henry Solowiej.
The Department’s suit alleged that the purported
union is a MEWA that marketed health benefits to employers
in southern and western states. From July 2000 to June
2003, the defendants spent millions of dollars of fund
assets on administrative expenses – including several
hundred thousand dollars paid to the purported union and
more than $1 million to marketers of the arrangement. The
Department also alleged that the defendants delayed
processing health claims, failed to operate the fund in an
actuarially sound manner and paid excessive fees for
services provided to the fund.
On September 7, 2005, the Court determined that
Cherille Shelp is a fiduciary to the Plan. On September
21, 2005, Ms. Shelp entered into a consent judgment
permanently enjoining her from serving as an
administrator, fiduciary, officer, trustee custodian,
counsel, agent, employee or representative in any capacity
to any ERISA-governed plan.
On November 17, 2005, former plan administrator Oak
Tree Administrators entered into a consent order, which
permanently enjoined and restrained Oak Tree
Administrators from violating the provisions of Title I of
ERISA and permanently enjoined it from providing third-
party administrator services to any ERISA-governed
employee benefit plan. Oak Tree Administrators agreed to
entry of a judgment in the amount of $1 million.
Provider Medical Trust – On January 30, 2004,
the Department sued the fiduciaries of Provider Medical
Trust (the Trust), a Tulsa-based MEWA for taking excessive
fees and making misrepresentations that resulted in the
participants incurring millions of dollars in medical
bills while believing they had health plan coverage. Among
the parties named in the lawsuit is Johnson Benefit
Administrators, LLC, which controlled PMT and managed
about 45 self-funded single employer group plans.
The suit sought the removal and a permanent bar of the
plan fiduciaries from serving any employee benefit plan
governed by ERISA, and asked that the fiduciaries provide
an accounting of the excessive fee charges and make full
restitution to the plans.
Since January 1, 1996, the defendants misrepresented
the Trust’s solvency and caused the Trust to pay
excessive service fees to the plan administrator, which
was owned by the fiduciaries. The fiduciaries also
allegedly misrepresented the Trust’s solvency to meet
state insurance solvency requirements and continued to
market the Trust without disclosing its true financial
situation.
On August 15, 2005, the court ordered defendants Robert
Johnson, Jr., and his corporate entities to restore
$4,900,000.00 in plan losses to the Provider Medical
Trust. Judge Eagan also permanently barred Mr. Johnson and
his companies from serving as fiduciaries or service
providers to any ERISA-covered plan. In addition, Judge
Eagan ordered defendant Bernard J. Westhoff to restore to
the plan $50,000, to pay $10,000 in penalties, and to
obtain before December 31, 2005, at least ten hours of
fiduciary training and education, and thereafter annually
obtain at least six hours of such training.
Team America Corporation – On September 15,
2006, the Department filed a complaint against Team
America Corporation, Steven Cash Nickerson, Ted Crawford
and Andrew Johnson in the United States District for the
Southern District of Ohio. It is alleged that Team America
Corporation, a Professional Employee Organization, failed
to, among other things, remit employee contributions and
employer contributions, which Team America received from
its client employers, for the payment of insurance
premiums.
The suit seeks the removal and a permanent bar of the
plan fiduciaries from serving any employee benefit plan
governed by ERISA, and asks that the fiduciaries be
ordered to make full restitution to the plans, including
interest, and correct the alleged prohibited transactions.
On September 6, 2007, the Court entered
a Default Judgment against Team America Corporation
permanently enjoining Team America Corporation and
ordering Team America to restore $2,371,193 to all its
plans. On April 25, 2008, the Court entered a Consent
Order and Judgment providing for the payment of
approximately $950,000 to the plans and 20 hours of
fiduciary instruction for Steven Cash Nickerson, Ted
Crawford and Andrew Johnson.
Mutual Association Administrators,
Inc. (MAA) – On July 30, 2008 the Department
obtained a default judgment requiring Huntington, New
York-based Mutual Association Administrators (MAA) to
restore nearly $1.8 million to the Mutual Employees
Benefit Trust (MEBT) and permanently barring the firm from
providing service to plans covered by the Employee
Retirement Income Security Act (ERISA) in the future. The
judgment resolves a lawsuit filed by the Department in the
federal district court in Central Islip, New York.
Mutual Employees Benefit Trust is a
multiple employer welfare arrangement that provided health
and other welfare benefits to 1,912 participants. Mutual
Association Administrators was the plan administrator to
MEBT.
The judgment requires MAA to pay
$1,779,111 in restitution. The Department sued the
defendants on November 15, 2001, alleging that they and 14
other MEBT trustees diverted the trust’s assets to sham
labor unions and the corporate defendants.
On May 4, 2002, the Department obtained
a preliminary order requiring four of the trustees to
resign, barring Leonard and Sharlene Slutsky, Clark Hower,
Marketing Motivation Associates Inc., Netscor Inc., VCT
Financial Services Inc., and Mutual Association
Administrators Inc. from serving or exercising control
over any ERISA-covered plan, and appointing an independent
fiduciary to oversee MEBT. Under prior consent orders, the
court ordered restitution to the plan and permanently
barred MEBT’s owner Susan Fisher from serving as a
trustee or in any official capacity to any ERISA-covered
plan.
Pennsylvania Builders Association (PBA)
– On August 25, 2008, the Department obtained a consent
judgment in the U.S. District Court for the Middle
District of Pennsylvania, in which the Pennsylvania
Builders Association (PBA), its wholly-owned subsidiary
and its trustees agree to restore $5 million to the fund
and pay a civil penalty of $500,000. The judgment also
permanently bars the trustees from using plan assets to
pay royalties and/or licensing fees to the association,
prevents the trustees from contracting with the subsidiary
for administrative services in exchange for fees, and
prohibits the use of trust assets for lobbying purposes.
In addition, current and future trustees must receive
eight hours of fiduciary training annually over the next
five years.
The lawsuit being resolved alleged that
PBA of Lemoyne, Pennsylvania; its wholly-owned subsidiary
Builders Services Inc. (BSI); and trustees Robert Basile,
Patrick Brewer, Dennis Brislin, Scott Cannon, James
Conner, Brad Elliott, Charles Farrell, Chuck Hamilton,
David Knipe, Gene Kreitzer, Gary Naeser, Michael Rodino,
Toni Rogan, Mack Smith, Chauncey Wirsing, Clarence Yeagley,
Jack Zimmer and Roger Zimmer violated their fiduciary
duties to the Pennsylvania Builders Association Benefits
Trust. PBA sponsored the trust, and BSI was administrator
of the trust.
The suit alleges that PBA received
royalty payments and BSI received administrative fees
under arrangements with BSI and the trust’s third party
administrators. The royalties paid to PBA represented a
percentage of the administrative fees paid by contributing
employers. The Department alleged that these royalty
payments were prohibited because the sponsor had provided
its name and endorsement to the trust when it created and
named the trust. The trustees allegedly misused plan
assets to pay royalties to PBA from 2000 to 2007,
administrative fees to BSI from 2000 to 2007 and for
political lobbying from 2002 through 2004.
The trust provided health, life
insurance, dental, vision and temporary disability
benefits to 12,616 participants as of 2006.
On September 9, 2008, a federal
district court in Atlanta held two former trustees of the
California-based International Union of Industrial and
Independent Workers Benefit Fund (IUIIW) in civil contempt
for failing to comply with a previous court order barring
them from serving in a fiduciary capacity to plans
governed by the Employee Retirement Income Security Act (ERISA).
Under the contempt order, Geoffrey
Beltz and James Miller are barred from serving in a
fiduciary capacity to any plans governed by ERISA;
communicating with participants of the IUIIW fund, and
marketing, selling and recruiting employers or employees
for plans offering benefits under ERISA. Furthermore, to
the extent that Beltz or Miller work for any employer,
association or labor organization which sponsors an ERISA-covered
employee benefit plan in the future, the contempt order
requires them to notify the directors and officers of such
organizations of the terms and requirements of the
contempt order.
Under the 2004 court order, the fund’s
trustees were required to pay $840,000 in restitution to
the fund and to pay civil penalties to the federal
government. The trustees were also barred from serving as
plan fiduciaries.
The Department alleged in the 2004
lawsuit that improper actions by Beltz, Miller and other
trustees to a health fund sponsored by the International
Union of Industrial and Independent Workers resulted in
several million dollars in unpaid health claims. The fund,
which purported to be a union-sponsored benefit plan, was
marketed to employers and individuals in Texas, Georgia,
Oklahoma, California and many other states. Several
states, including Oklahoma and Georgia, ordered the fund’s
operators to stop all insurance-related activities.
Beltz and Miller admitted they later
violated the 2004 contempt order by directly or indirectly
controlling an ERISA-covered health plan offered by the
International Union of Industrial and Independent Workers
Local 30, another purported labor organization. The
contempt order was entered in federal district court in
Atlanta.
United States v. Garst – On
May 21, 2008, Paula Garst was sentenced to 37 months in a
federal prison, 36 months of supervised release and
ordered to make restitution of $32,341.16 by the U.S.
District Court for the Northern District of Texas -
Amarillo Division. Garst previously pled guilty to one
count of health care fraud. Garst was an insurance agent
for Direct Marketing Inc., a company she started in 2003.
She utilized various other company names including
Privilege Care, Healthcare Solutions, and Advanced
Marketing Group, Inc. when soliciting individuals and
small employers to apply for the low cost health
insurance. From October 2003 through December 2005, Garst
solicited participants to enroll in a health plan by means
of false and fraudulent misrepresentations. Garst
falsified participants’ status as group employees of a
fictitious company and inflated premium costs which she
collected and diverted for her own use. Garst also forged
the endorsement on payroll checks that were issued to
"employees" from the staffing agencies and
deposited the proceeds into bank accounts under her care
and control.
United States v. Graf – On February 5, 2007, James
Graft, 45, was sentenced to 25 years in federal prison and
was ordered to pay more than $20 million in restitution
for collecting millions of dollars in premiums from people
who thought they were insured, but were left facing more
than $20 million in unpaid claims when Employers Mutual
was shut down. Graft was found guilty of federal fraud
charges for bilking the customers of Employers Mutual ,
LLC, a company that purported to provide health care
coverage to more than 20,000 people across the United
States but left more than $20 million in unpaid claims for
medical services when it was shut down. The jury returned
a guilty verdict on 23 of 28 felony counts alleged in the
superseding indictment. The jury found James Graft,
formerly of Canyon Lake, California, guilty of one count
of conspiracy, five counts of mail fraud, six counts of
money laundering, ten counts of misappropriation in
connection with a health benefit program, and one count of
obstruction of justice in the grand jury investigation.
United States v. Manney, et al. – On June 9, 2006,
Dr. Maruthi S. Manney, 48, of Montgomery Village,
Maryland, was sentenced to three years in prison, followed
by three years of supervised release and his wife, Lakshmi
Manney, age 46, was sentenced to 21 months in prison,
followed by three years of supervised release after being
convicted of mail fraud. Dr. Manney also was convicted of
one count of wire fraud. The Manneys were ordered to pay
restitution of $615,932.71.
Dr. Maruthi Manney, and his wife Lakshmi Manney were
convicted after a three-week trial of various counts of
wire and mail fraud stemming from their operation of a
health benefit plan they co-founded known as SAI Plus. Dr.
Manney was convicted of one count of wire fraud and 8
counts of mail fraud. Lakshmi Manney was convicted of 8
counts of mail fraud. Dr. Manney and Lakshmi Manney
executed a scheme to defraud several employer groups in
Texas who sought health insurance for their employees. The
defendants made numerous misrepresentations regarding the
health benefit plan: Dr. Manney falsely told the various
employer groups that SAI Plus was a licensed third-party
administrator in Texas; that the plan would process and
pay claims within 30 to 60 days; and that SAI Plus would
obtain excess loss coverage for each group, and maintain a
separate trust account for each group’s health care
contributions. Lakshmi Manney was in charge of the claims
department. SAI Plus routinely processed the claims and
printed the checks, but kept the printed checks in a file
cabinet and later in a locked office. Both defendants face
a maximum penalty of 5 years imprisonment for each count
of mail fraud and a $250,000 fine. Dr. Manney also faces a
maximum penalty of 5 years for the wire fraud count.
United States v. Steven Edwards – On June 13, 2006,
Steven Edwards was sentenced to 150 months imprisonment,
fined $100,000 and ordered to pay restitution of $4.56
million. On February 21, 2006, Steven Edwards pled guilty
to orchestrating a scheme to defraud his employees,
clients and their employees, various insurance companies,
and health care providers out of millions of dollars paid
to him for the purpose of obtaining and maintaining
workers’ compensation insurance and a health care
benefits program. Instead, Edwards diverted money paid to
him for personal uses. Edwards operated three employee
leasing companies or professional employer organizations
with offices in Topeka, Kansas, and Durham, North
Carolina, with clients in at least 10 states. Edwards’
actions left thousands of people with millions of dollars
of unpaid health care. Victims of Edwards’ scheme are
located in states across the nation, including North
Carolina, South Carolina, Florida and Michigan.
United States v. Joseph Crowley – On February 20,
2007, Joseph Crowley was sentenced to 50 months
imprisonment and 2 years supervised release for health
care fraud. Crowley committed health care fraud while he
was the owner and CEO of Healthcare Economics Group (HEG).
HEG, which was based in Hilton Head, was a holding company
for eight companies located in numerous states. On March
13, 2006, in the District of South Carolina, Joseph
Crowley, formerly the owner and CEO of Healthcare
Economics Group (HEG), was an administrator of medical
benefits for employers that self insure. Crowley, while
acting as CEO of HEG, converted more than $4.5 million
from the company’s claims accounts to the operating
accounts and used the funds for company expenses. HEG
collected more than $225 million per year in payments for
medical benefits for approximately 35,000 workers. Crowley
used his access to the plan’ accounts to transfer the
funds. Crowley pled guilty to one count of 18 USC 1347,
health care fraud.
United States v. Ben Zander– On June 28, 2006, the
U.S. District Court in Trenton, New Jersey sentenced the
former attorney of default Meridian Benefits of Wayne, New
Jersey, to 21 months in prison and a year of supervised
release, and barred him from service to employee benefit
plans governed by the Employee Retirement Income Security
Act (ERISA). Attorney Ben Zander and Meridian Benefits
former owner Donald Ruth also were ordered to jointly make
restitution of $24,678,000. Meredith Benefits was
established by Ruth as a third-party administrator to
health benefit plans, but, instead operated as a health
plan. The company accepted contributions and paid benefit
claims from its own accounts. In 2005, Ruth pleaded guilty
to mail fraud and tax evasion and admitted to using
employee benefit plan assets to purchase a Florida home
and a boat and for other expenses while failing to pay
health claims. This resulted in more than $15 million in
unpaid health claims for 2,800 workers. He also deceived
the workers by providing them with false information
assuring them claims would be paid. Attorney Zander
pleaded guilty in September 2005 to being and accessory
after the fact to mail fraud and assisting in concealing
the fraud. He admitted to knowing about Ruth’s false
statements. Ruth was separately sentenced in April 2006 to
seven years in prison for his role in the health care
scheme. He also was permanently barred from serving in a
fiduciary capacity to any employee benefit plan in the
future.
This fact sheet has been developed by
the U.S. Department of Labor, Employee Benefits Security
Administration, Washington, DC 20210. It will be
made available in alternate formats upon request: Voice
phone: 202.693.8664; Text telephone: 1.202.501.3911.
In addition, the information in this fact sheet
constitutes a small entity compliance guide for purposes
of the Small Business Regulatory Enforcement Fairness Act
of 1996.
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