U.S. Labor Department Sues New York & California Textile Companies and Officers to Recover Delinquent Employee Contributions to 401(k) Plan

Archived News Release — Caution: Information may be out of date.

New York - The U.S. Department of Labor has sued defunct New York City and Santa Monica, California-based textile firms American Fabrics Co. and Beverly Trimming Co., as well as two officers of the companies, for failure to forward more than $100,000 in employee contributions and loan repayments owed to the American Fabrics Co. 401(k) Savings Plan.

The lawsuit alleges that the companies and officers Richard Haik and Mitchell Ostrover violated the Employee Retirement Income Security Act (ERISA) by failing to remit to the plan contributions and loan repayments deducted from employees’ paychecks between January 2002 and December 2003. Both Haik and Ostrover were considered to be fiduciaries to the plan.

The suit, filed on December 21, 2006, in the U.S. District Court for the Southern District of New York, asks the court to order Haik and Ostrover to restore to the plan all losses resulting from their improper actions plus interest and to require them to forfeit any account balances they have with the plan. It also seeks to remove them as plan fiduciaries, to permanently bar them from service to ERISA-covered plans in the future, and to require American Fabrics and Beverly Trimming to correct their prohibited transactions. In addition, the law suit requests appointment of an independent fiduciary to oversee the plan.

American Fabrics, which also had operations in Bridgeport, Connecticut, and Bogalusa, Louisiana, ceased operations this past summer. Beverly Trimming ceased operations in 2004. The American Fabrics Co. 401(k) Savings Plan covered approximately 106 participants from both companies and held $821,139 in assets as of June 30, 2006.

“The law is clear,” said Jonathan Kay, regional director in New York for the Labor Department’s Employee Benefits Security Administration (EBSA). “When a company sponsors a plan to benefit employees, it cannot use plan assets for any other purpose. Employee contributions and loan repayments withheld from employee paychecks must be forwarded to the plan without delay.”

Employers in danger of committing similar violations, who are not yet the subject of an investigation by EBSA, may be eligible to participate in the department's Voluntary Fiduciary Correction Program (VFCP). Participation in the VFCP requires employers to make workers whole but allows them to avoid EBSA enforcement actions, civil penalties and any applicable excise taxes. For more information see www.dol.gov/ebsa.

The investigation of this case was conducted by the New York regional office of EBSA and the lawsuit was filed by the Labor Department’s regional Solicitor of Labor’s office in New York City. Employers and workers can contact the New York EBSA office at 212.607.8600 or may call EBSA’s toll-free number 1.866.444.EBSA (3272) for help with any problems relating to private-sector pension and health plans.

(Chao v. Richard Haik)
Civil Action Number: 06-CV-15359

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

Contact Name: John M. Chavez
Phone Number: 617.565.2075