Labor Department Sues Nevada Associations and Principals for Misusing Over $6 Million in Health Assets

Archived News Release — Caution: Information may be out of date.

San Francisco, California - The U. S. Department of Labor obtained a temporary restraining order December 13 freezing the assets of Carson City-based Employers Mutual, LLC, affiliated associations and their principals for diverting more than $6 million of health plan assets to pay excessive expenses rather than paying the benefits of participants. The health plan provides benefits to more than 22,000 participants and beneficiaries throughout the country.

The court order also removes the defendants and appoints Thomas Dillon as the independent fiduciary responsible for managing the plans, accounting for the assets and paying benefits owed to participants. A hearing on the department’s motion for a preliminary injunction is scheduled for January 2, 2002.

A lawsuit filed simultaneously with the court order alleges that defendants James Lee Graf, William R. Kokott, Nicholas E. Angelos, Kari Hanson, their companies and the associations violated the Employee Retirement Income Security Act in connection with the operations of Employers Mutual and related associations. The suit alleges that the defendants diverted health premiums to their personal accounts in the form of administrative expenses paid to them.

From January to October 2001, the associations allegedly collected $14 million in contributions and paid out only $3 million in health claims. The defendants also delayed processing of claims. There are an estimated $4.5 million in unpaid claims. Kokott, Angelos and Graf also failed to operate the plans in an actuarially sound manner, paid excessive compensation for services provided to the plans and each defendant knowingly participated in the improper actions of the others.

The suit seeks a court order restoring all losses and illegal profits received by them and to obtain a bond as security against future plan losses. The suit also asks for removal of the defendants from their positions with the plans and the appointment of an independent fiduciary to manage the plans. The court actions were filed in federal district court in Reno.

The case was investigated by the San Francisco Regional Office of the Labor Department’s Pension and Welfare Benefits Administration.

(Chao v. Employers Mutual)

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