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The U. S. Department of Labor has sued the
trustees, an accountant and a “shell investment entity” for
imprudently investing nearly all of the retirement plan assets of Montgomery
Academy, located in Gladstone, N.J., in unsecured investments.
The Montgomery Academy is a private not for
profit school that was created to serve a select group of economically
underprivileged children who were sent to the academy by local school
districts. The retirement plan, started in 1984, provided benefits for some 55
employees as of June 1995.In October 1995, the plan had assets of $1,331,375.
In October of that year, defendant trustees
Carolyn N. Kohn and Dr. Adolph Singer allowed all but $2,500 of the plan’s
assets to be transferred to the plan’s accountant, Charles Genovese.
Genovese then allegedly invested the money with Hemlock Investor Associates, a
shell company controlled by him which had no assets of its own or any
“prior reputable investment history.”
According to the lawsuit, trustees Kohn and
Singer violated the Employee Retirement Income Security Act when they
improperly:
— loaned virtually all of the plan’s assets to a
shell company without security or information about the investment;
— relied on the advice of Genovese and did not conduct
independent investigations into the merits of investing plan assets with
Hemlock Investors Associates;
— failed to investigate whether Genovese received
compensation based on the plan’s investments;
— made an unsecured loan to Genovese representing 99% of
plan assets without determining the nature of how the assets were to be
invested; and
— failed to obtain documentation or financial
information about Hemlock before investing the plan’s assets with the
company.
The lawsuit also alleges that Genovese failed to
inform the trustees about how the plan’s assets would be invested, did not
furnish them with written documentation on the investment with Hemlock and
invested nearly all of its assets in investments without security. He also
allegedly invested plan funds for his own benefit in a company in which he held
a direct financial interest and failed to disclose to plan officials his
ownership in Hemlock Investors Associates.
As relief, the department's lawsuit seeks to
require that the defendants make the plan financially whole and undo all
transactions prohibited by law. The lawsuit also asks the court to remove
Singer as a trustee and to permanently bar all the defendants from serving in
positions of trust to any plan governed by ERISA.
The court action resulted from an investigation
conducted by the New York Regional Office of the department's Pension and
Welfare Benefits Administration into alleged violations of ERISA. The lawsuit
was filed on Aug. 25 in federal district court in Newark.
(Herman v. Kohn) |
