Labor Department Settles Its Lawsuit Concerning Losses From Derivative Investments In Connecticut-Based Electricians' Plan

Archived News Release — Caution: Information may be out of date.

The U. S. Department of Labor has obtained a settlement requiring trustees of two pension funds for the International Brotherhood of Electrical Workers Local 35 and the National Electrical Contractors Association — through their insurer — to repay to the funds $1.54 million in losses resulting from the plans’ investments in highly risky mortgage derivatives. The settlement also anticipates payment of another $93,000 by the two funds’ insurer. Ultimately, the funds anticipate recouping approximately $2.1 million.

Mortgage derivatives are highly complex securities derived from pools of mortgage loans or from mortgage-backed securities.

The consent order and judgment also ordered trustees to delegate the selection and all other management of investments by one of the funds, which is an annuity fund, to one or more investment managers. Alternatively, if the annuity fund allows participants to direct investments in their own individual accounts, the court ordered the trustees to delegate authority to a qualified investment adviser to select the investment alternatives to be offered to fund participants.

In agreeing to the consent agreement, the trustee defendants did not admit to any of the allegations in the Secretary’s complaint.

Headquartered in Wallingford, Conn., the two funds together cover 768 participants and had $46 million in assets in March 1994.

The consent order and judgment resolve a lawsuit filed in July 1997 alleging that certain trustees and securities broker Steven G. Hassenmiller purchased 31 collateralized mortgage obligations (CMOs), types of mortgage derivatives, for the two funds through Hassenmiller’s various employers including Paine Webber, Westcap Government Securities and Arbour Financial Corp.

In August 1996 in another Labor Department consent judgement involving the purchase of mortgage derivatives for the Connecticut Plumbers and Pipefitters Pension Fund, Hassenmiller also was a defendant. In that case’s judgment he was barred for three years from any involvement with all plans covered by Employee Retirement Income Security Act (ERISA).

Settling trustee defendants are Frank J. Bramanti, Nicholas R. Bonadies, Glendon L. Bonday, Carl DiFazio, James M. Gunning, Richard G. Kemp, Edward Kowalski, Kenneth B. Leech, Michael R. Moconyi, Edward T. McPhee, Jr., John P. Murphy, Jr., Robert W. Murray, Jr., and Robert A. O’Neil. The trustees allegedly imprudently authorized the purchases and sales of highly risky investments they did not understand, allowed Hassenmiller to select the purchases and sales of the funds’ CMO investments, and authorized investment for each fund in CMOs that did not comply with each fund’s investment guidelines.

“In obtaining this settlement, we reaffirmed our goal of protecting the pension benefits of these workers while ensuring that consumers know the department is only a phone call away,” said James Benages, director of the Boston Regional Office of the department’s Pension and Welfare Benefits Administration, which conducted the investigation of alleged violations of federal pension law. Employers and workers can reach the Boston office at (617) 565-9600 for help with private-sector pension and health benefit problems.

The consent order and judgment were entered in federal district court in New Haven on July 19.

(Herman v. Bramanti, et al)
Civil Action #3:97 CV 01291 (PCD)

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