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The Labor Department's Pension and
Welfare Benefits Administration has filed a lawsuit in a case involving
derivatives, highly complex synthetic investments with value derived from
assets such as mortgages, commodities, interest rates or stocks.
Trustees and former securities brokers to the Connecticut
Plumbers & Pipefitters pension fund were sued yesterday to recover more
than $3 million in losses from overly risky investments in derivatives.
The lawsuit, filed in New Haven federal court, seeks to
recover all losses plus any gains the fund's assets would have earned had the
defendants invested plan funds in other appropriate financial instruments. It
also seeks to remove the trustees from their positions with the fund and
permanently bar them from service to any plan governed by the Employee
Retirement Income Security Act (ERISA).
Headquartered in Wallingford, Conn., the fund covered
2,475 participants and had $106 million in assets in March, 1994.
According to the suit, the trustees and broker Steven G.
Hassenmiller purchased 79 collaterialized mortgage obligations (CMOs), a class
of derivatives, for the plan through his various employers, including Paine
Webber, Westcap Government Securities and Arbour Financial Corp.
The lawsuit says they failed to analyze the investment
risks, losing more than $3 million.
Among the defendants named in the lawsuit are trustees
Frank R. Krzywicki, Hubert J. Barnes, Cameron Champlin, John T. Higgins, Eugene
Hull, John W. Olsen, William P. Shannon, U. Arthur Spose, Robert K. Hilton,
Robert A. Polisky, Gregory Salmini, Alan Spose, Fred Otto and Thomas Debrinski.
The trustees allegedly:
- authorized the purchases and sales of overly-risky investments for
which they had an inadequate understanding,
- improperly delegated to Hassenmiller discretion in setting the timing
and price of the purchases and sales of the fund's CMO investments,
- never required Hassenmiller to comply with the fund's requirements
regarding investment managers,
- never established investment guidelines with which Hassenmiller had
to comply as required by the fund's documents,
- failed to properly appoint, monitor and remove Hassenmiller as an
investment manager and advisor,
- failed to effectively monitor the fund's investments in CMO
investments.
In April 1994, the trustees hired Criterion Investment
Management to assume management of the mortgage-backed securities from
Hassenmiller. On Criterion's recommendation, the entire fund portfolio in CMOs
was sold at a total loss in excess of $3 million.
The lawsuit is the result of an investigation by the
Boston regional office of the department's Pension and Welfare Benefits
Administration into alleged violations of the federal pension law.
(Reich v. Hassenmiller)
(Civil Action No. 3:96 CV 1514 CDJS)
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