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Archived News Release — Caution: Information may be out of date.
EBSA News Release: [08/29/2003]
Contact Name: Gloria
Della
Phone Number: (202) 693-8664
Labor Department Sues Trustees of Seven Union Pension
and Health Plans over Investments with Oregon Investment Manager
WASHINGTON—The U.S.
Department of Labor today sued the trustees of seven union-sponsored pension
and health plans in Ohio and Minnesota for imprudently investing plan assets in
risky private placement investments with Capital Consultants LLC. As a result
of the investments, the plans suffered substantial losses that jeopardized the
benefits of over 19,000 workers.
“The trustees’ actions are abominable. Hardworking men and
women trusted these trustees to protect and preserve their union-sponsored
pension and health benefits. The trustees abused that trust and thousands of
workers saw their retirement security put in jeopardy. The Administration is
suing on behalf of these workers to recover as much as possible for the plans
and to establish new procedures and controls to ensure that workers’
pension and health plans will not be raided again,” says Secretary of
Labor Elaine L. Chao.
Capital Consultants, LLC (CCL) was a registered investment manager that
provided investment services to more than 60 primarily union-sponsored pension,
health and welfare plan clients governed by federal employee benefits law. In
2000, the department and the Securities and Exchange Commission (SEC) sued CCL
and its principals for investing plan assets in a series of imprudent loans,
self-dealing and charging excessive fees. In April 2002, the department sued
trustees of 10 union plans - mostly on the west coast - for similar violations.
As a result of the department’s actions, the court appointed a receiver
who has collected more than $140 million in addition to $110 million obtained
through private litigation.
In 2001, Jeffrey Grayson and his son Barclay Grayson, CCL’s chief
executive officer and president respectively, were criminally charged with
regard to the improper investments. The son currently is serving a prison
sentence.
The Labor Department today filed five separate lawsuits alleging that
the trustees violated the Employee Retirement Income Security Act (ERISA) by
imprudently authorizing plan assets to be invested in a series of risky private
placement investments managed by CCL, including loans to Wilshire Credit
Corporation. The seven plans covered over 19,000 participants and had
approximately $793 million in assets as of April 30, 2000.
Between 1995 and 2000, the trustees allegedly authorized increasing
investments of plan assets in private placement investments. Trustees of five
plans maintained the private investments with CCL despite warnings by the
plans’ investment advisors about the illiquid nature, unacceptable
collateral and risks associated with the investments. For two of the plans, the
trustees failed to adequately monitor or to retain experts qualified to monitor
investments made in the private investments by CCL.
In addition, trustees Dennis P. Talbott, Greg Shafranski and Jerry
Westerholm are charged with self-dealing for accepting substantial gratuities
from CCL for payment of trips, services and other gratuities.
Named as defendants are current and former trustees of the: Tri-County
Building Trades Health Fund of Austintown, Ohio in Chao v. Talbott;
International Brotherhood of Electrical Workers Local 212 Pension Trust Fund of
Cincinnati in Chao v. Bolling; Electrical Workers Local No. 292 Annuity
and Pension Plans of St. Louis Park, Minn. in Chao v. Shafranski; Sheet
Metal Workers Local Pension Fund in Akron in Chao v. Derreberry; and the
International Brotherhood of Electrical Workers Local 38 Pension and Health and
Welfare Funds of Valley View, Ohio in Chao v. Chilia. In addition, the
suit charges Monitor Advisory Services, Inc. and its owner Louis C. Gerber as
the investment monitors to the IBEW local 212 fund.
The department is seeking court orders to require that defendants
restore to the plans any losses and illegal gratuities received by them and to
institute new plan procedures and controls relating to plan investments. The
suits involving the Tri-County, Sheet Metal Workers and Electrical Workers 292
plans also ask the court to permanently bar defendant trustees Talbott,
Shafranski and Westerholm from serving as plan fiduciaries.
The suits were filed in federal district court in Cleveland, Cincinnati
and Minneapolis. The cases resulted from investigations conducted by the
Cincinnati and Kansas City regional offices of the department’s Employee
Benefits Security Administration.
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Archived News Release — Caution: Information may be out of date.
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