EBSA Press Release: Labor Department Expands Lawsuit On Behalf Of Workers To Reclaim As Much As $5 Million Siphoned From Health Funds [02/26/1997]

Archived News Release — Caution: Information may be out of date.

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The Labor Department announced today it will pursue additional charges against managers of Chicago-based group health and welfare funds who allegedly used assets to pay expenses for cell phones and health club memberships while as much as $5 million in health and welfare benefits went unpaid for some 3,000 workers.

"When the Labor Department finds fund managers joy riding with workers benefit assets we will take swift and appropriate action," said Acting Secretary of Labor Cynthia Metzler. "Sadly, the workers and the health care providers have been left holding the bag because of the reckless disregard demonstrated by a handful of individuals."

According to the lawsuit, the trust fiduciaries allegedly diverted workers' contributions to their health plans using the money for their own personal medical and recreational expenses. Under the guise of union dues, association fees, commissions or other charges to the trusts, the funds were illegally used to pay:

• personal expenses such as cellular phones, health club memberships, exercise equipment and car repairs;
• a $11,000 dental bill for fiduciaries even though they were not covered by the IPC's dental program;
• over $20,000 in severance pay to and other employees of the IPC trust upon the closure of the trust; and
• all of the medical and other claims of defendant Espisito during July 1996 amounting to more than $25,000 when the trust was in dire financial condition and most other participants and beneficiaries were receiving little or no payments on their medical claims.

The complaint amends a lawsuit filed in August 1996 to include new defendants: additional trustees to The International Professional, Craft and Maintenance Employees Association Trust (IPC) as defendants; "purported" employer associations; and service centers to the trusts and their individual owners. These additional defendants are based in Arkansas, California, Illinois, Maryland and Tennessee.

Olena Berg, Assistant Secretary for Pension and Welfare Benefits Administration, said, "These individuals used health benefit funds like their personal bank accounts. They even paid for their own benefits before covering claims of covered workers and their dependents. The department is vigorously pursuing such cases to make sure that funds for health benefits are not diverted from plans at the expense of innocent small businesses and their employees."

The Professional Employees and Affiliates Association Trust (PEAA) took over the IPC trust. Both trusts, while created as purported collectively bargained plans, are suspected to be welfare plans known as multiple employer welfare arrangements (MEWAs). MEWAS allow small businesses to pool their benefit plans in a single collective trust.

The department also petitioned the court for and was granted a temporary restraining order and preliminary injunction freezing the assets of the IPC trust and the defendants. While the restraining order froze most of the original defendants' assets, the injunction essentially froze only the assets of the two trusts. Finally, the court appointed an independent trustee to oversee the trusts.

The department is seeking restitution of all losses suffered by the two trusts, return of illegal payments and profits received by the defendants and posting of a bond to assure adequate funds are available to offset any future losses. The lawsuit also seeks to remove the defendants from their positions with the trusts or as service providers, to permanently bar them from affiliation with any plan governed by ERISA and to appoint an independent fiduciary.

Named in the lawsuit are trustees John J. Wolfe, Susan Espisito, Ronald Lauria, James M. Kennelly, Gerald Lee, Frank L. Sutfin and Richard Wesley, Sandra Spencer and Timothy Doyle; IPC, union locals 1 and 100 and their successor unions; employer associations American Service Contractors Association, American Association of Service Professionals, National Corporate Services Association, National Religious Workers Association, and Alliance for Alternatives in Healthcare; service centers National Benefit Group Inc., American National Benefit Group Inc., Alternative Health Insurance Services Inc., AIA Inc., Murphy and Associates Inc., National Alliance of PPO Networks Inc. and their owners; and the computer consulting firm of L-Tech Enterprises. Also named were the individual owners of the associations and companies, including Elwood J. Trader, Paul T. Wood, Brandon E. Trader, Steven Gorman, Herbert David Abbott, Jarman Holland and David Lasley.

Both cases resulted from an investigation by PWBA's Chicago Regional Office into alleged violations of federal pension law. This case was filed on Feb. 21 in federal district court in Chicago.

Archived News Release — Caution: Information may be out of date.