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Release Date: 12/29/1998)
Release Number: USDL
98-223
Contact Name: Sharon Morrissey
Phone Number:
202.219.8921 |
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| (Also issued from New York as NY 232 on
Dec. 28, with the following headline -Federal Court Names Independent
Fiduciary to Take Over Elmont, New York-Based Health Insurance Plan —
Affiliated with Firm Based in Great Neck, Plan Owes $25 Million in Claims in 32
States) |
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The Department of Labor has obtained a preliminary injunction
order continuing a freeze on the assets of the trustees of the International
Workers’ Guild (IWG) health plan, two affiliated organizations and their
principals. They allegedly left approximately $25 million in unprocessed health
claims while mismanaging the assets of the health plan covering approximately
3,600 participants in 32 states. |
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The plan, created in 1996, was marketed to small employers by
consultants, insurance agents and related professionals. At its height, 9,300
participants were covered by the plan. |
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The preliminary injunction, obtained Dec. 24, places the health
plan and the plan’s third- party administrator, Fidelity Group, Inc. under
the control of an independent fiduciary, David W. Silverman, who will manage
the plan’s finances, oversee the operations of the plan and make
recommendations about its continued operation. Judge Jacob Mishler also ordered
that the fund’s status quo be maintained pending an orderly transfer of
records to Silverman, who has been directed:
— to develop a plan for “equitable” payment of
outstanding participant claims within 20 days of the preliminary
injunction’s being granted,
— to coordinate his actions with respective insurance
commissioners in the affected states and,
— where possible, to negotiate for alternative health
insurance coverage for participants who no longer can be served by the health
plan |
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The department said in its suit that IWG is a “sham
union” which operated the plan for employers with “bogus”
collective bargaining agreements with the National Association of Business
Owners and Professionals, Inc. (NABOP), a sham “employer
association”. Both of these “sham” entities also have been
placed under the control of the independent fiduciary. IWG’s principal
office is located in Elmont, NY. |
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Under a temporary restraining order received Dec.15, the court
removed the Fidelity Group, Inc., officers Eugene Duncan and Dwayne Samuels and
general manager Lee Jarmolowsky, and others associated with it, including David
Spooner, the National Association of Business Owners and Professionals, the
wives of Duncan and Samuels, and trustees Paul Askew, Charles Bradley, Noel
Shaw Jr. and Terence Rhue. |
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The Labor Department’s lawsuit alleges that from 1995 the
trustees and others violated the provisions of the Employee Retirement Income
Security Act (ERISA) because they:
paid excessive administrative fees from health plan assets to
Fidelity for its service as the third-party administrator;
diverted assets of the health plan to IWG and NABOP in the form
of sham union and association fees;
permitted diversion of health fund assets to pay the salaries
of the wives of Samuels and Duncan, who were employed by NABOP;
failed to monitor and administer the fund’s claims
processing system and adjudication system, thereby resulting in a $25 million
backlog of unprocessed health claims;
failed to assure the financial soundness of the plan through
the use of adequate underwriting and sound actuarial analysis;
failed to establish adequate contribution rates and maintain
cash reserves to assure the payment of claims;
allowed the plan to become insolvent and used plan money for
prohibited purposes; and
permitted the NABOP and IWG to be created or operated primarily
to divert plan assets from the payment of health benefits.
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The department’s lawsuit further seeks to require the
defendants to restore any losses suffered by the plan, to return any assets
they illegally received and to permanently bar them from serving as fiduciaries
or service providers to any plan governed by ERISA. |
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This case 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 preliminary injunction
order was granted in the U.S. District Court in Uniondale, L.I. |
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(Herman v. Fidelity Group, Inc.)
Civil Action No. CV-98-7683
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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. |
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