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Employee Benefits Security Administration

Media Release

Release Date: 02/08/2002
Release Number: 20
Contact Name: Gloria Della

Phone Number: 202.693.8666

Nevada Court Freezes Assets of Health Associations And Principals of Employers Mutual

San Francisco, California - The assets of Carson City-based Employers Mutual, LLC, affiliated associations and their principals were frozen and the appointment of the independent fiduciary to the health plans was extended under a preliminary injunction granted February 1, 2002, by a Reno, Nevada federal court. The health plan provides benefits to more than 22,000 participants and beneficiaries nationwide.

The court order also removes the defendants from their positions with the plans and extends the appointment of Thomas Dillon as the independent fiduciary responsible for managing the plans, accounting for the assets and paying benefits owed to participants.

On December 13, 2001, the department sued defendants James Lee Graf, William R. Kokott, Nicholas E. Angelos, Kari Hanson, their companies and the associations for violations of the Employee Retirement Income Security Act (ERISA). The suit alleged that the defendants diverted health premiums from Employers Mutual and related associations to their personal accounts in the form of administrative expenses paid to them.

According to the suit, the associations collected $14 million in contributions from January to October 2001 and paid out only $3 million in health claims. The defendants also delayed processing health claims, resulting in an estimated $4.5 million in unpaid claims.

Kokott, Angelos and Graf also failed to operate the plans in an actuarially sound manner and paid excessive compensation for services provided to the plans, and each defendant knowingly participated in the improper actions of the others.

The suit asks for restoration of all losses and illegal profits received by the defendants and that they obtain a bond as security against future plan losses. The suit also seeks removal of the defendants from their positions with the plans and the appointment of an independent fiduciary to manage the plans.

This case was investigated by the San Francisco Regional Office of the department’s Pension and Welfare Benefits Administration. A copy of the Preliminary Injunction may be obtained on the internet.

(Chao v. Graf
Civil Action No. CV-N-01-0698-DWH(RAM))

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