US Labor Department obtains judgments against trustees of New York City- based pension plan for violating employee benefits law

NEW YORK – The U.S. Department of Labor has obtained a judgment against trustee Samuel Kohl and default judgments against trustee Caren Kohl and Welko Inc. of New York City as fiduciaries of the Welko Inc. Pension Plan, permanently barring them from serving in a fiduciary capacity to any employee benefit plan covered by the Employee Retirement Income Security Act.

The judgment orders the defendants to cooperate fully with the independent fiduciary and provide him with a full accounting of the whereabouts and amounts of all plan assets and liabilities. In July, the U.S. District Court for the Southern District of New York granted the department a preliminary injunction barring the same defendants from conducting any business on behalf of the plan, and ordering them to turn over to the court all of the plan’s cash assets.

The court appointed David Lipkin of Metro Benefits Inc. as the independent fiduciary for the pension plan with full authority to manage the plan, pay outstanding participant claims and terminate the plan if necessary. In addition, the judgment ordered the offset of any benefits due Samuel and Caren Kohl to ensure that plan expenses are satisfied and other plan participants receive their benefits.

“The gross misuse of plan assets by the fiduciaries in this case is intolerable,” said Jonathan Kay, New York regional director of the department’s Employee Benefits Security Administration, which conducted the investigation leading up to this litigation. “We took legal action to ensure that the participants and beneficiaries of this pension plan obtained the benefits due them.”

The Labor Department sued the defendants for breaches of fiduciary duties and causing the plan to engage in transactions prohibited by ERISA. The court found that the fiduciaries diverted plan assets to trustee Samuel Kohl, the plan sponsor Welko Inc., a now defunct jewelry business formerly located in New York City, Meglark Inc., a private wholesale diamond company, and AFBRI Ltd., a nonprofit research entity in Israel; failed or refused to pay fees on a Manhattan condominium owned by the plan that resulted in litigation, fees and a possible reduction in the property’s value; refused to distribute benefits to a qualified plan participant; and failed or refused to account for plan assets, income and losses.

In addition, the court found that the Kohls used plan funds to purchase the Manhattan condominium unit and then housed their personal nanny in the unit while failing to collect rental income for the plan. The court further found that Samuel Kohl used plan assets to obtain a $250,000 home equity line mortgage but did not apply the proceeds to benefit the plan or its participants.

The court further found that Kohl treated plan assets as his own funds under his belief that most of the plan’s vested benefits would accrue to him, in violation of ERISA requirements that a plan trustee deal with plan assets for the benefit of all participants and not for personal benefit.

Employers and workers can reach EBSA’s New York office at 212-607-8600 or toll-free at 866-444-3272 for help with problems relating to private sector retirement and health plans.

Solis v. Kohl
Civil Action Number 10-CV-4640

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