|
|
|
|
|
Release Date: 08/06/1998
Release Number:
USDL-152
Contact Name:GLORIA DELLA
Phone Number:
202.219.8921 |
|
|
|
The U. S. Department of Labor has obtained a temporary restraining
order freezing the assets of Novato, California-based Interstate Services, Inc.
(ISI), Thorndyke International, Inc. (TI), and numerous other fiduciaries and
service providers to health plans operated by ISI after more than $ 1 million
in health benefit assets were diverted to them and others affiliated with a
health care scheme known as The ERISA Advantage program. |
|
The temporary restraining order also placed The ERISA Advantage
program under the control of an independent fiduciary, William J. Kropkof of
Kropkof, Kingsley & Associates, Inc., and removed defendants John B. Hyde,
his daughter Mary King, Kenneth Ruff, Patricia Tyler, and her firm Security
National Corp. (SNC) from their positions with the program. Other defendants
include Hyde’s wife and son — Margaret Ann Hyde and John Hyde —
insurance consultants Billie Gannaway, Herbert Robert Brown and Lawrence R.
Sellars, and staff leasing executive Malcolm Cordell Hull. |
|
ERISA Advantage-Self-Insured Retention/Single Employer Trust
Program, a nationwide multiple employer welfare arrangement (MEWA), was created
in 1994 by Hyde. Hyde, who has a history of involvement with failed health care
schemes, was barred by a New York federal court in 1997 from serving a health
plan known as the International Brotherhood of Trade Union Local 122
Trust. |
|
TI served as the plan administrator to enrolled health plans until
it was replaced by ISI, which purchased TI in August 1997. ISI is majority
owned by the Hyde family. SNC, of Washington, D.C., serves as trustee and ISI
is the designated plan administrator of the individual trusts created by
participating employers to fund the health benefits of employees. |
|
TI served as the plan administrator to enrolled health plans until
it was replaced by ISI, which purchased TI in August 1997. ISI is majority
owned by the Hyde family. SNC, of Washington, D.C., serves as trustee and ISI
is the designated plan administrator of the individual trusts created by
participating employers to fund the health benefits of employees. |
|
ERISA Advantage purportedly provided administrative services to
hundreds of single- employer trusts governed by the Employee Retirement Income
Security Act (ERISA). As of June 1998, the program served over 300 individual
trusts covering at least 15 states, including Texas, Oklahoma, Virginia,
Florida, Georgia, South Carolina, North Carolina, New Jersey, Alabama,
Kentucky, Indiana, Michigan, Mississippi, Wisconsin, and Louisiana. The program
was implemented through a network of consultants, insurance agents and related
professionals, employee leasing companies, health provider associations, and
other professional organizations who market the program to employers
nationwide. |
|
The department’s lawsuit alleges that Hyde and other
defendants violated ERISA by diverting a substantial portion of employer
contributions targeted to pay health benefits of participants and
beneficiaries. Instead of paying benefits, the department alleges that the
money was used to pay administrative fees, marketing fees, commissions and
other non-benefit expenses. |
|
The department’s lawsuit further alleges that Hyde and other
defendants violated ERISA by:
allowing assets of the individual health trusts to be commingled
in direct contradiction of a commitment to maintain separate trusts to fund
promised benefits of enrolled employers;
diverting an excessive amount — $888,382.31 or 45% of
contributions — of plan funds to pay for administrative fees, marketing
fees, commissions and other non- benefit expenses;
failing to follow the program funding plan, albeit an unsound
plan;
failing to obtain “stop loss” insurance as represented
by the program and purchasing reinsurance from an unlicensed offshore insurance
carrier — Colonnade Insurance Co., A.V.V. — a company which is not
subject to any state solvency or reserve requirements;
using persons affiliated with other failed health plans to act
as insurance intermediaries even though they had been previously barred from
serving plans governed by ERISA;
paying an array of insurance intermediaries who sole purpose was
to collect commissions from the premium payments financed with plan assets; and
collecting reinsurance premiums after the program terminated its
reinsurance with Colonnade. |
|
According to an expert retained by the Labor Department, the ERISA
Advantage program is not financially viable. As of June 1998, program owes at
least five individuals approximately $400,000 in unpaid health claims, which
continue to mount. |
|
The lawsuit seeks to require the defendants to restore any losses
and return any illegal profit they received. The department also asked
the court for injunctive relief against the defendants to remove them from
service to the program and barring them from future service to ERISA plans and
to appoint an independent fiduciary to manage plan assets. |
|
This case resulted from an investigation conducted by the San
Francisco Regional Office of the Department’s Pension and Welfare Benefits
Administration into alleged violations of ERISA. The temporary restraining
order and lawsuit were filed in U. S. District Court in San Francisco on Aug.
4. The order was entered by Judge Thelton E. Henderson on Aug. 5. A hearing on
the department’s request for a preliminary injunction is scheduled for
Aug. 21. |
|
(Herman v. Hyde)
Civil Action No. C98-3019 |
|
U.S. Department of
Labor news releases are accessible on the Internet. The information in this
news release will be made available in alternate format upon request (large
print, Braille, audio tape or disc) from the Central Office for Assistive
Services and Technology. Please specify which news release when placing your
request. Call 202.693.7773 or TTY 202.693.7755. |
|
|
| |
|
