Labor Department Seeks To Recoup Profit Sharing Plan Losses From First Capital Mortgage Corporation Officer

Archived News Release — Caution: Information may be out of date.

The U.S. Department of Labor has sued a Birmingham, Ala. businessman and his companies for causing their profit sharing plan to lose more than half of its assets because of the official’s investments in high risk securities, call options and warrants.

The defendants are Tim A. King of Birmingham, plan trustee, and his company, First Capital Mortgage Corporation (FCMC), a mortgage broker with 14 offices in six states and approximately 50 employees. FCMC ceased operations in 1999. King also owns or owned 50 percent or more of the stock in American Mortgage of Shreveport, La. (AMS), a mortgage originator, and First Capital Insurance of Birmingham, an insurer of credit life insurance to FCMC. These companies are considered by the Labor Department to be parties-in-interest.

More than 30 affected participants in the depleted plan worked for King at FCMC and AMS. The plan, with assets of $502,361 as of Dec. 31, 1994, was funded by discretionary contributions by FCMC. Employee contributions were not permitted.

According to the lawsuit, from May 31, 1994 to May 31, 1995, King’s investment decisions created a high potential for loss and allegedly resulted in net losses to the plan, with its assets totaling $192,493 as of May 31, 1995. In its review of the defendant’s investment transactions for plan years 1994 and 1995, the department found multiple purchases and sales of various stocks valued at less than $2 per share, with the resultant losses reported.

The department is seeking to have the court require the defendants to restore all losses including interest to the plan, remove FCMC and King from their positions of trust to the plan and permanently bar them from serving as fiduciaries to or having control over the assets of any employee benefit plan subject to the Employee Retirement Income Security Act (ERISA).

The lawsuit also asks the court to appoint a successor trustee/administrator to marshall the plan’s assets, to distribute them and to terminate the plan, if necessary. In addition, the lawsuit is asking that the plan set off King’s individual plan account against the losses if they are not otherwise restored by the defendants.
In the department’s lawsuit, it also alleged that on Feb. 27, 1997, King and FCMC entered into an out-of-court settlement with a former employee/plan participant in which plan assets were used to pay $30,000 plus interest to the participant and $10,000 to his attorney.

The legal actions pertaining to the pension plan resulted from an investigation conducted by the Atlanta Regional Office of the department’s Pension and Welfare Benefits Administration into alleged violations of the federal pension law. The lawsuit was filed in the federal district court in Birmingham on March 6, 2000.

(Herman v. First Capital Mortgage Corporation and Tim A. King, an Individual )
Civil Action No. CV-00-BU-557-S

U.S. Department of Labor news releases are accessible on the Internet. The information in this news release will be made available in alternate format upon request (large print, Braille, audio tape or disc) from the Central Office for Assistive Services and Technology. Please specify which news release when placing your request. Call 202.693.7773 or TTY 202.693.7775.

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