Justia ERISA Opinion SummariesArticles Posted in White Collar Crime
United States v. Frank
Frank embezzled $19 million from his former employer, NCI, and pleaded guilty to wire fraud, 18 U.S.C. 1343. The district court sentenced Frank to 78-months’ imprisonment and ordered Frank to pay restitution of $19,440,331. The government has recovered over $7 million and attempted to garnish Frank’s 401(k) retirement account under the Mandatory Victims Restitution Act (MVRA), filing an Application for Writ of Continuing Garnishment, 18 U.S.C. 3664(m)(1)(A)(i), naming Schwab as the garnishee. Schwab currently holds approximately $479,504 in Frank's 401(k) account, which is covered by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001. Frank argued that ERISA’s anti-alienation provision protects retirement plans against claims by third parties. The Fourth Circuit affirmed that the MVRA permits the seizure of Frank’s 401(k) retirement account, notwithstanding ERISA’s protections. When the government enforces a restitution order under the MVRA, it stands in the shoes of the defendant, acquiring whatever rights to 401(k) retirement funds he possesses; the government’s access to the funds in Frank’s 401(k) account may be limited by terms set out in Frank’s plan documents or by early withdrawal penalties to which Frank would be subject. The court remanded so that the district court may decide what present property right Frank has in his account. The court rejected an argument that the Consumer Credit Protection Act, 15 U.S.C. 1673(a), limits the government to taking 25 percent of the funds. View "United States v. Frank" on Justia Law
McLemore v. Regions Bank
Stokes owned 1Point, which managed employee-benefits plans and 401(k) retirement plans as a third-party administrator (TPA). Most were governed by the Employee Retirement Income Security Act, 29 U.S.C. 1002. TPAs generally provide record-keeping and assist in transferring money, but do not handle money or securities. Stokes directed clients to send funds to accounts he had opened in 1Point’s name. Cafeteria plan clients deposited $45 million and 401(k) clients deposited $5.7 million in accounts at Regions. Because the accounts bore 1Point’s name, Stokes was able to transfer money. Between 2002 and 2006, Stokes stole large sums. Regions failed to comply with the Bank Secrecy Act, 31 U.S.C. 3513, requirements to report large currency transactions, file suspicious-activity reports, verify identities for accounts, and maintain automated computer monitoring. In 2004, the U.S. Financial Crimes Enforcement Network assessed a $10 million fine against Regions. In 2006, Stokes and 1Point filed for bankruptcy. The Trustee filed suit against Regions in bankruptcy court on behalf of victimized plans for which he assumed fiduciary status. The suit was consolidated with plaintiffs’ suit. The district court withdrew the Trustee’s case from bankruptcy court, dismissed ERISA claims, and found that ERISA preempted state law claims. The Sixth Circuit affirmed. View "McLemore v. Regions Bank" on Justia Law
United States v. Eriksen
Defendants, the chairman and chief executive officer of Lunde Electric Company ("company"), appealed convictions stemming from the misappropriation of employee 401(k) contributions to pay the company's operating expenses. At issue was whether there was sufficient evidence to support defendants' convictions under 18 U.S.C. 664, for embezzlement or conversion of elective deferrals, and 18 U.S.C. 1027, for false or misleading statements in a required Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C 1001 et seq., document. The court held that there was sufficient evidence to support defendants' convictions on Counts 17 and 18 under section 664 where there was sufficient evidence for the jury to conclude that the 1991 Profit Sharing Plan had been restated before defendants retained their employees' elective deferrals in the company's general account; where defendants commingled their employees' contributions with the company's assets to prop up their failing business and therefore, intentionally used their employees' assets for an unauthorized purpose; where they sent participants account statements showing 401(k) balances which were in fact non-existent; where defendants' decision to deviate was the wilful criminal misappropriation punished by section 664; and where defendants were alerted repeatedly about their obligation to remit the deferrals and defendants hid their actions from employees. The court also held that there was sufficient evidence to support defendants' convictions on Count 21 under section 1027 where defendants' initial decision to mislead their own employees about the solvency of their retirement plans by filing false account statements and false Form 5500s were the behaviors targeted by section 1027.