A Safe Harbor For The Pension Plan Trustee

April 25, 2014

Two physicians lost substantial retirement savings in a Ponzi scheme perpetrated by their financial advisor. With the advisor imprisoned on fraud charges and his company insolvent, the physicians sued the pension plan trustee – our client – as the sole remaining deep pocket, alleging breach of fiduciary duty under ERISA.  

Our Approach
We ascertained that the retirement accounts were individually-directed, affording plan participants almost limitless investment options. Investments were made via directive forms which expressly disclaimed the trustee’s liability for the transaction. Each plan participant received monthly statements listing their transactions and assets, and warning that certain assets were valued at cost, and not at market value. The doctors blindly deferred to their advisor on investment recommendations, even signing blank investment directives in advance. Eventually federal authorities discovered the fraud, and the majority of assets in their accounts were exposed as worthless.

We successfully defended the trustee under a safe harbor provision of ERISA which bars claims by investors who exercise independent control over their accounts, rather than opting from assets selected by the trustee. The claimants had asserted that the trustee concealed material non-public facts regarding the advisor’s fraud, since the trustee had previously sued the advisor on behalf of other investors, purportedly depriving them of the “control” required to satisfy the safe harbor. The district court disagreed. Because the prior suits were public record, there was no concealment. The summary judgment ruling was one of the first to test the safe harbor shelter from liability for ERISA trustees in plans permitting self-directed accounts.

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