US Department of Labor alleges fiduciaries for a Chicago-area employee benefit plan misappropriated more than $2.8M of plan assets
CHICAGO – The U.S. Department of Labor has asked a federal court in Illinois to hold fiduciaries of the United Employee Benefit Fund, along with its counsel, liable for more than $2.8 million in losses after an investigation found they allowed the misappropriation of the fund’s assets. A Chicago-based multiple employer welfare arrangement, UEBF provides life insurance benefits to about 63 nationwide employer-sponsored benefit plans.
Filed Feb. 28, 2022, in the Northern District of Illinois, Eastern Division, the department’s complaint alleges the fund’s fiduciaries and its counsel committed multiple violations of the Employee Retirement Income Security Act from 2015 to 2018. The complaint seeks to recover losses and interest, to bar the fiduciaries and counsel permanently from serving as fiduciaries and service providers to employee benefit plans and appoint an independent fiduciary to take over the administration of the fund, including conducting an accounting of all plan assets and determining whether the fund should be terminated.
“The fiduciaries of the United Employee Benefit Fund and its counsel’s alleged violations of the Employee Retirement Income Security Act harmed the United Employee Benefit Fund’s financial security impacting the benefits promised to fund participants nationwide,” said Employee Benefits Security Administration Deputy Regional Director Kelli Hammerl in Chicago.
Investigators with the department’s Employee Benefits Security Administration in Chicago allege violations by trustees Gary Meyers and John Fernandez, administrator David Fensler, trustee and service provider Herbert McDowell and his company United Preferred Companies Ltd. and fund counsel L. Steven Platt, who was employed by Chicago law firm Robbins, Salomon & Patt Ltd.
At the outset of its investigation, the department subpoenaed Fensler, the fund and Robbins, Salomon & Patt to compel them to provide documentation needed to complete its investigation. As a result of the subpoena enforcement actions filed in district court to ensure compliance with the subpoenas, the department obtained full compliance with each of the subpoenas issued, and received more than 8,000 responsive documents from Robbins, Salomon & Patt. Judge Jorge L. Alonso found the department had “good reason to believe that RSP [Robbins, Salomon & Patt] lacks either the expertise or the will to produce all responsive documents.” Judge Alonso also ordered a neutral third-party expert to retain full-image backups of the relevant computer hard drives and email server at the law firm.
“The investigation of this case led the U.S. Department of Labor to exercise its subpoena authority and ultimately pursue enforcement through the district court to compel cooperation with the department’s investigation in order to determine whether any violations of ERISA existed,” said Regional Solicitor Christine Heri in Chicago. “The U.S. Department of Labor will use all the tools at its disposal in holding those who violate the law accountable.”
The department alleges the defendants violated ERISA when they did the following:
- Transferred $1,125,000 in fund assets to a third party to purchase McDowell’s home out of foreclosure in November 2016, and allowed McDowell to continue living there through transactions orchestrated by Platt and David Schwalb, an attorney who participated in the transaction knowingly.
- Transferred $400,000 in fund assets to McDowell’s foreclosure attorney, in August 2016 and January 2017.
- Transferred $84,000 in fund assets to McDowell directly in August 2017.
- Paid $77,000 in fund assets to McDowell/UPC, from April 2017 through April 2018, to research health benefits for the purpose of starting a new plan or adding health insurance to the fund.
- Paid $46,440 in fund assets to McDowell’s son in May 2015 as part of a dispute with a third party over life insurance commissions.
- Loaned McDowell $5,000 in fund assets in August 2015.
- Paid McDowell unreasonable compensation of $895,000 from November 2015 through September 2018.
- Loaned $260,000 in fund assets in December 2017 to an entity owned by trustee Meyers and Schwalb.
In its complaint, the department also names Robbins, Salomon & Patt Ltd. as a defendant liable for the losses caused by counsel L. Steven Platt as the department alleges he was acting within the course and scope of his employment with the law firm when he violated ERISA. Additionally, the department names Robbins DiMonte, Ltd., which is the new name of defendant Robbins, Salomon & Patt Ltd. after a merger with another law firm that occurred in January 2022. Several of the prohibited transactions, including the $1,125,000 purchase of McDowell’s home, were funneled through an Interest on Lawyer Trust Account arranged by Platt and administered by Robbins, Salomon & Patt Ltd.