EBSA Press Release: LABOR DEPARTMENT SUES BANK OF AMERICA FOR LOSSES TO PENSION PLANS [02/15/1996]

For more information call: (202) 219-8921
 

The U.S. Department of Labor is suing the Bank of America for a $3.3 million investment on behalf of two pension plans for a San Francisco Bay firm, Norcal Waste Management, Inc.

The lawsuit seeks to have Bank of America restore to the plans all losses resulting from its breaches of the Employee Retirement Income Security Act and to be barred from serving as a trustee for any ERISA-covered plan.

Secretary of Labor Robert B. Reich said, "Working people across America depend on professional trustees like the Bank of America to maintain the security of their retirement income. It is distressing to learn that the Bank of America -- a large institution that should be an industry leader -- may have jeopardized retirement benefits of hundreds of Norcal's employees by flouting the strict standards designed to safeguard those benefits."

As trustee of Norcal's defined benefit plans, Bank of America allegedly allowed the plans to use plan assets to buy $3,346,693 in common stock in Techno-Therm, Inc., a company manufacturing space heaters in Colorado.

According to information available prior to the common stock purchase, Techno-Therm was in precarious financial condition. By August 1991, less than two years after the plans' stock purchase, the value of the plans' total investment in Techno-Therm fell to $2 ($1 per plan) and, in February 1993, Techno-Therm filed for bankruptcy.

Moreover, the Techno-Therm stock was purchased on the condition that the plans' investment would be used to repay a $1 million debt of Daniel Horst, Techno-Therm's president and owner, to Consolidated Environmental Industries, Inc., a wholly-owned Norcal subsidiary. Such use of plan assets is prohibited by ERISA.

The lawsuit alleges that Bank of America negligently failed to investigate the relationship between the plans, Norcal and Consolidated, which it should have known about because of its status as a long-time senior lender to Norcal. Consolidated had borrowed $1 million from Norcal and then loaned the money to Horst.

The lawsuit against Bank of America is the result of an investigation of the San Francisco office of the department's Pension and Welfare Benefits Administration into alleged violations of federal pension law. It was filed Feb. 14 in federal district court in San Francisco.

(Reich v. Bank of America) 
Civil Action # 96-0583CAL

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