Court Grants Preliminary Injunction, Continuing Freeze Of Assets Of Trustees And Administrator Of New York-Based Health Program

Archived News Release — Caution: Information may be out of date.

(Also issued from New York as NY 232 on Dec. 28, with the following headline -Federal Court Names Independent Fiduciary to Take Over Elmont, New York-Based Health Insurance Plan — Affiliated with Firm Based in Great Neck, Plan Owes $25 Million in Claims in 32 States)

The Department of Labor has obtained a preliminary injunction order continuing a freeze on the assets of the trustees of the International Workers’ Guild (IWG) health plan, two affiliated organizations and their principals. They allegedly left approximately $25 million in unprocessed health claims while mismanaging the assets of the health plan covering approximately 3,600 participants in 32 states.

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

The preliminary injunction, obtained Dec. 24, places the health plan and the plan’s third- party administrator, Fidelity Group, Inc. under the control of an independent fiduciary, David W. Silverman, who will manage the plan’s finances, oversee the operations of the plan and make recommendations about its continued operation. Judge Jacob Mishler also ordered that the fund’s status quo be maintained pending an orderly transfer of records to Silverman, who has been directed:

— to develop a plan for “equitable” payment of outstanding participant claims within 20 days of the preliminary injunction’s being granted,

— to coordinate his actions with respective insurance commissioners in the affected states and,

— where possible, to negotiate for alternative health insurance coverage for participants who no longer can be served by the health plan

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, Inc. (NABOP), a sham “employer association”. Both of these “sham” entities also have been placed under the control of the independent fiduciary. IWG’s principal office is located in Elmont, NY.

Under a temporary restraining order received Dec.15, the court removed the Fidelity Group, Inc., officers Eugene Duncan and Dwayne Samuels and general manager Lee Jarmolowsky, and others associated with it, including David Spooner, the National Association of Business Owners and Professionals, the wives of Duncan and Samuels, and trustees Paul Askew, Charles Bradley, Noel Shaw Jr. and Terence Rhue.

The Labor Department’s lawsuit 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 contribution 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 department’s lawsuit further 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 preliminary injunction order was granted in the U.S. District Court in Uniondale, L.I.

(Herman v. Fidelity Group, Inc.)
Civil Action No. CV-98-7683

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

Contact Name: Sharon Morrissey
Phone Number: 202.219.8921