EBSA Press Release: Multiple Employer Welfare Officials Charged With Siphoning $10 Million In Plan Funds [04/15/1996]

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The U.S. Department of Labor was awarded a temporary restraining order placing a $10 million fraudulent health and welfare benefits program under the control of an independent fiduciary on Friday. Officials and service providers of the welfare benefit trust, known as a multiple employer welfare arrangement (MEWA), allegedly siphoned employer and employee payments intended to provide health and welfare benefits.

From November 1992 through 1995, more than $25 million in employer and individual contributions were collected by the International Association of Entrepreneurs of America, which continues to collect contributions. The complaint alleged approximately $10.3 million was diverted to or used by the defendants and entities controlled by them.

The Labor Department also alleged the defendants have used more than $1 million in trust assets to make unsecured or under-secured loans to personal friends and their companies.

As of December 1995, the association's 333 employer members each had established employee benefit plans providing health and occupational illness and injury benefits to approximately 16,000 employees through the employee benefit trust. The association was incorporated as a nonprofit organization in Texas and marketed in at least 29 states.

The restraining order appoints Jeanne Barnes Bryant, director of receivership for the Tennessee Department of Commerce and Insurance, as the independent fiduciary of the welfare benefit trust, headquartered in Nashville, Tenn. She will collect, marshal and administer all of the trust's assets for eligible participants and service providers and, if necessary, implement the trust's orderly termination.

She also will serve as the receiver of the MEWA sponsor, the International Association of Entrepreneurs of America, and its parent organization, IAEA, Inc., a for-profit organization. Both are based in Dallas.

The temporary restraining order froze the assets of certain defendants, removed them from their positions as fiduciaries or service providers and appointed an independent fiduciary to operate the trust pending further order of the court.

In addition, the department obtained a partial settlement with defendants Ross Fuller, who had served as trustee, administrator, committee member and investment adviser, and his company Stockton Fuller & Co., Inc., and benefit review committee members William T. Chervenak and Norman Rosenberg. They have resigned their positions and have been enjoined from dealing with employee benefit plans governed by federal pension law.

A preliminary injunction hearing has been set for 1:30 p.m. (C.D.S.T.) on April 19 in Nashville against the remaining defendants: the association; Joseph N. Fiore and James E. Taylor, settlors of the trust and officers/directors of the association; M. Ray Wadle, officer/director of IAEA, Inc.; IAEA, Inc., which collects employer and employee contributions; and Norman Meyer and Katherine Meyer, who are officers of the Realistic Adjustment Company, now known as National Affiliated Adjustment Company, which processes benefit claims. The department alleges that Fiore and Taylor received the bulk of the siphoned contributions.

Among other things, the lawsuit alleges that the defendants failed to provide an actuarially sound basis to fund benefits promised plan participants and beneficiaries and failed to set aside sufficient reserves to insure payment of legitimate participant claims. As a result, plan participants and their beneficiaries have and will continue to incur claims which may never be paid by the trust.

The defendants allegedly used the trust's assets for their personal gain while defying state and federal court orders to submit to state regulation. There are pending legal actions with at least 10 states regarding IAEA.

In a related matter, on April 1, defendant Norman Meyer and his company agreed to pay restitution in a 1992 Labor Department case in Tempe, Ariz., against United Labor Council Local Union 615 to which 40 of the employers affected by today's lawsuit belonged. Defendants Fiore, Taylor and Norman Meyer also served as trustees of Local Union 615.

The legal actions, filed Friday in the federal district court in Nashville, are the result of an investigation by the Dallas office of the department's Pension and Welfare Benefits Administration into alleged violations of federal pension law.

(Reich v. Fiore, et al) 
Civil Action #3-96-0347