Labor Department Sues Trustees of Lee Bailey Communications, Inc. Pension Plan For Misusing Plan Assets

Archived News Release — Caution: Information may be out of date.

Los Angeles, California - Allegedly illegal loans made to Lee Bailey Communications, Inc. from its pension plan are the basis of a lawsuit filed January 4, 2002, by the U.S. Department of Labor against the Los Angeles-based corporation, its president and its former executive vice president-secretary.

The department alleges that Harvey Lee Bailey and Diane Blackmon-Bailey, who authorized the loans, violated the federal law that protects the assets of pension plans from misuse. It is seeking to restore more than $75,000 in losses to the plan. Filed in the U.S. District Court for the Central District of California, the suit results from an investigation by the Los Angeles regional office of the department’s Pension and Welfare Benefits Administration (PWBA).

Bailey and Blackmon-Bailey serve as trustees to the plan and are also its investment managers and the sole members of the administrative committee of the defined benefit plan for company employees. The lawsuit alleges that between April and November 1996, they caused the plan to make four loans totaling $90,000 to the company, each evidenced by a promissory note executed by Bailey on the company’s behalf.

The notes required the loans to be repaid in five years at an annual interest rate of 10 percent. As of the date of the complaint, the company, Bailey and Blackmon-Bailey have repaid $81,250 to the plan. They still owe the plan $75,772 in principal and interest.

According to Billy Beaver, PWBA regional director in Los Angeles, the suit asks the court to require the defendants to restore the remaining principal balance on the loans, including interest that continues to accrue. The lawsuit also seeks their removal as fiduciaries of the plan and calls for the appointment of an independent fiduciary, whose costs would be paid by the defendants. The suit also asks to bar Bailey and Blackmon-Bailey from serving as fiduciaries or service providers in the future to any employee benefit plan covered by the Employee Retirement Income Security Act (ERISA).

(Chao v. Harvey Lee Bailey, Diane Blackmon-Bailey, Lee Bailey Communications, Inc., Defined Benefit Plan
Civil Action No. 02-CV-00145)

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Archived News Release — Caution: Information may be out of date.