EBSA Press Release: Court Freezes Assets of New York Health Program [12/15/1998]

Archived News Release — Caution: Information may be out of date.

For more information call: (202) 219-8921

The Department of Labor has obtained a temporary restraining order freezing the assets of the trustees of the International Workers' Guild health plan, two affiliated organizations and their principals for mismanaging the assets of the health plan covering participants in 21 states.

"This health plan has $25 million in unprocessed medical claims," Secretary of Labor Alexis M. Herman said. "We had to stop the leakage of money to protect the people who depend on this plan for health benefits."

The temporary restraining order places the health plan under the control of an independent fiduciary, Kenneth Feinberg, who will manage the plan's finances, oversee the operations of the plan and make recommendations about its continued operation.

The department said in its suit that IWG is a "sham union" which operated the plan for employers with "bogus" collective bargaining agreements with the National Association of Business Owners and Professionals, a sham "employer association".

The court removed Fidelity Group, Inc.-- the plan administrator, officers Eugene Duncan, Dwayne Samuels and Lee Jarmolowsky, and others associated with it, including David Spooner, the National Association of Business Owners and Professionals Inc., the wives of Duncan and Samuels, and trustees Paul Askew, Charles Bradley, Noel Shaw Jr. and Terence Rhue.

The plan was created in 1996, and was marketed to small employers. At its height, 9,300 participants were covered by the plan, which now covers approximately 3,600 participants. The plan was marketed by consultants, insurance agents and related professionals.

The Labor Department's lawsuit, filed with the request for restraining order, alleges that from 1995 the trustees and others violated the provisions of the Employee Retirement Income Security Act (ERISA) because they:

• paid excessive administrative fees from health plan assets to Fidelity for its service as the third-party administrator;
• diverted assets of the health plan to IWG and NABOP in the form of sham union and association fees;
• permitted diversion of health fund assets to pay the salaries of the wives of Samuels and Duncan, who were employed by NABOP;
• failed to monitor and administer the fund's claims processing system and adjudication system, thereby resulting in a $25 million backlog of unprocessed health claims;
• failed to assure the financial soundness of the plan through the use of adequate underwriting and sound actuarial analysis;
• failed to establish adequate contributions rates and maintain cash reserves to assure the payment of claims;
• allowed the plan to become insolvent and used plan money for prohibited purposes; and
• permitted the NABOP and IWG to be created or operated primarily to divert plan assets from the payment of health benefits.

The lawsuit seeks to require the defendants to restore any losses suffered by the plan, to return any assets they illegally received and to permanently bar them from serving as fiduciaries or service providers to any plan governed by ERISA.

This case resulted from an investigation conducted by the New York Regional Office of the Department's Pension and Welfare Benefits Administration into alleged violations of ERISA. The lawsuit seeking a temporary restraining order was filed in U. S. District Court in Brooklyn.

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