LABOR DEPT. REACHES SETTLEMENT WITH L.A. LAW FIRM, PARTNERS FOR PENSION VIOLATIONS

Archived News Release — Caution: Information may be out of date.

Los Angeles - The U.S. Department of Labor today announced that two consent decrees were entered September 30, 1999, in the U.S. District Court for the Northern District of California, San Francisco, which settle a lawsuit it filed against the law firm of Veatch, Carlson, Grogan & Nelson; James C. Galloway, Jr., PC, a professional corporation; Phillip M. Borini, the firm’s executive director and administrator; and attorneys James C. Galloway, Jr., Mark A. Weinstein, Anthony D. Seine, and C. Snyder Patin.

In a complaint filed simultaneously with these settlement agreements the department alleged that the Los Angeles law firm, its current and former partners, and Phillip M. Borini, breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) which caused financial losses to the Veatch, Carlson, Grogan & Nelson Profit Sharing 401(k) Plan, the firm’s pension plan.

According to Billy Beaver, regional director for the Los Angeles Regional Office of the Pension and Welfare Benefits Administration (PWBA), the defendants agreed to pay more than $647,000 to restore all losses suffered by the pension plan resulting from untimely and unpaid employee and employer contributions to the pension plan and from the diversion of participant forfeitures from pension plan accounts into Veatch, Carlson’s general account.

Beaver explained that one consent decree was based on a settlement negotiated by the department with C. Snyder Patin, a former partner with the Veatch, Carlson firm, and the other consent decree was based on a settlement with the remaining defendants.

The consent decree with Patin calls for him to make a lump sum payment to the pension plan of $127,600 plus interest, and bars him permanently from serving as a fiduciary of or service provider to any employee benefit plan covered by ERISA.

The consent decree with the remaining defendants calls for them to restore $647,188 plus interest (minus the payment from Patin) to the pension plan in monthly installments of $10,000 until March 2001, and monthly installments of $30,000 thereafter until the total amount owed is fully paid. The consent decree also requires them to step down as fiduciaries of the firm’s pension plan, appoint an independent fiduciary to administer the pension plan, and to pay all costs in connection with the appointment and retention of the independent fiduciary. Borini will be permanently barred from serving as a fiduciary of or service provider to any employee benefit plan covered by ERISA. The other defendants will also be barred permanently from serving as fiduciaries of or service providers to any employee benefit plan covered by ERISA, with the exception of performing those fiduciary duties associated with the appointment and retention of the independent fiduciary on behalf of the firm’s pension plan.

Under the terms of the Plan’s governing documents, Veatch, Carlson is the employer, plan administrator and the named fiduciary of the firm’s pension plan, with authority to control and manage its operation and administration and to direct the investment of its assets, while Borini is the plan’s trustee authorized to act on behalf of the partnership.

The department alleged that the defendants withheld voluntary employee contributions from participant paychecks but then failed to forward these contributions to the pension plan on a timely basis, as required by ERISA. The alleged failure to forward these funds to the pension plan permitted these employee contributions instead to be illegally commingled with Veatch, Carlson’s general funds and used for business purposes, resulting in financial losses to the pension plan.

It was also alleged that Borini failed to collect on a timely basis employer matching contributions owed to the pension plan. This alleged failure to collect the employer matching contributions also resulted in losses to the firm’s pension plan.

Further, the terms of the pension plan’s governing documents required any forfeitures of employer matching contributions to be reallocated to other pension plan accounts. The depart ment alleged that more than $75,000 in participant forfeitures were not reallocated, but were instead allegedly diverted by Borini into Veatch, Carlson’s general account and thereupon used for business purposes.

Finally, the department alleged that the other defendants failed to supervise or monitor Borini’s activities with respect to the firm’s pension plan, in violation of their fiduciary duties under ERISA.

Today’s actions resulted from an investigation conducted by the Los Angeles Regional Office of PWBA.

Note to editors: Civil Action File No. C 99-04363 WHO (Herman vs Veatch, Carlson, Grogan & Nelson et al)

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

Contact Name: Mike Shimizu
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