Compliance February 28, 2009

401(k) Embezzler Tied to Escort Service

Federal prosecutors have charged the former controller of one of Boston’s largest investment firms of diverting funds from the company’s retirement plan—to bank accounts linked to an adult escort service.
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The Boston Business Journal reports that the U.S. Attorney’s office in Boston said late Thursday that Mark J. Harrington, 52, was charged in federal court with embezzling roughly $368,000 from the 401(k) plan of his former employer, Anchor Capital Advisors in Boston.
Harrington was a vice president and controller at Anchor Capital, which managed more than $7 billion in client assets, according to the report. Harrington was fired from Anchor Capital in January after being confronted about the alleged scam by firm president Bill Rice, according to the report.
In an affidavit filed in support of the criminal complaint, special agent Christina A. Rosen detailed a plan orchestrated by Harrington over a six-month span that allegedly saw him siphon unvested funds within Anchor Capital’s 401(k) plan into bank accounts with Danversbank and Citizens Bank, according to the Business Journal. The report cites the affidavit in noting that Carmine P. Arenella, who also had access to those funds, was involved with Harrington in an adult escort business that was detailed in multiple e-mails uncovered in the investigation.
According to the report, the alleged scam started roughly two years after Anchor Capital was acquired by Boston Private Financial Holdings in June 2006. At that time, Anchor Capital’s employees were encouraged to use Boston Private’s existing 401(k) plan going forward, according to Rosen’s written affidavit.
At that point, Harrington was given the responsibility of winding down Anchor Capital’s own retirement plan, which was managed in-house and used State Street and Fidelity Investments as fund custodians. Rosen claims that the alleged embezzlement focused on forfeited accounts left by former Anchor Capital employees. After being questioned about the embezzlement, Harrington allegedly admitted to targeting those funds because they are lightly audited, Rosen said.
The alleged theft came to light in December, when Harrington was caught on surveillance tape trying unsuccessfully to cash a $9,788 check at several Danversbank’s north of Boston.
Rice and Anchor Capital assistant controller Kyle Gorman later identified Harrington on the surveillance tapes, according to the court filing. If convicted on these charges, Harrington faces up to 5 years imprisonment, to be followed by 3 years of supervised release and a $ 250,000 fine.
The case was investigated by the U.S. Department of Labor and the Employee Benefits Security Administration in Boston.
IMHO February 28, 2009

IMHO: Trust “Company″

I saw an interesting event headline the other day. It said simply, “Trust is an economic stimulus package.″
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A short, and somewhat simplistic, assessment to be sure. And yet, IMHO, one that may well lie at the heart of our current economic turmoil; trust – or perhaps more accurately, the lack thereof.
Trust was surely at issue when the financial system ground to a halt last fall, with investors anxiously pulling back funds from institutions that were similarly concerned about the financial integrity of those to which they had extended credit. In response, the federal government first tried to broker deals between troubled firms and what turned out to be soon-to-be-troubled firms…and then decided to sit on the sidelines when the second “opportunity” emerged, leaving everyone to wonder if the government would step in or not – and if so, how (and how much)? Under stress (if not duress), the first big bailout was pressed through – but the articulated plan for its dispersal was abruptly set aside – and before you know it, $350 billion of our money seems to have vanished with no more apparent impact than a cupful of water poured onto a raging inferno.
Since then, we’ve had a change in administrations, and while some surely remain hopeful, trust remains elusive. Nor, IMHO, has there been much, if any, effort to nurture a restoration of trust. Let’s face it, the choices some of firms have made regarding compensation packages and activities (including their mode of transportation to Congressional hearings) in this environment do demonstrate an incredible disregard for the sensitivities of the times (in their defense, some legitimate business activities are being caricatured as abuses, and not every dollar spent by these firms came from the taxpayer’s pockets; however, the resonance of those criticisms is indicative of the climate of mistrust). Many of those same members of Congress that evidence such outrage about those activities turn around and, with a straight face, claim that they’ll “stimulate” the economy by chumming in projects to an “emergency” package that are surely every bit as wasteful and inappropriate for the times as the corporate activities they publicly disparage. And then they have the temerity to tell the nation that the package contains no “earmarks.”1
Advisers know first hand how important trust is in cultivating relationships, both at the plan sponsor and participant levels. Unfortunately, trust is one of those things that can be wiped out in an instant – and once damaged, even under the best of circumstances, can take years to restore. Those entrusted with other people’s money have perhaps a unique obligation, for when they violate that trust, that impact can be felt beyond that one individual, but even to the system(s) they represent. For example, clients of Bernie Madoff – or clients of firms that were clients of Bernie Madoff – will surely, for a time anyway, be less trusting of their advisers – and who can blame them? When might participants – most of whom seem, for the moment, anyway, to be willing to stick with their current investment plans – decide that they can’t afford to keep throwing good money into a market that continues to erode, not reward, their hard-earned savings? How much of their patience with that result is a function of the trust they have invested in you?
I think we can all accept the notion that these are extraordinary times, and that even the so-called experts aren’t exactly sure what will “work,” or how much of what will work will be required. I think we can even accept some misguided attempts to do the right things – even if they turn out to be the wrong things – so long as they are well-reasoned, well-intentioned, and well-articulated (or at least explainable).
What we really can’t tolerate – while we’re trying so hard to pull together – are the kinds of attitudes and behaviors that keep pulling us apart.
1One man’s definition of “pork” is another’s “much needed expenditure of government funds” (and always has been), and the definition of “earmark” remains more art than science. For some, the Congressional definition of an “earmark” wouldn’t include specific projects that are included in legislation that is voted on (as opposed to specific projects that are added on AFTER legislation is adopted) – and that is apparently the definition being applied when we’re told that the bills being signed in recent days are bereft of earmarks. It’s not a wholly illegitimate position – but, IMHO, one that is at least “nuanced.”
Note that the Congressional Research Service defines earmarks as “Provisions associated with legislation (appropriations or general legislation) that specify certain congressional spending priorities or in revenue bills that apply to a very limited number of individuals or entities. Earmarks may appear in either the legislative text or report language (committee reports accompanying reported bills and joint explanatory statement accompanying a conference report).” Personally, I think that is consistent with the way in which most Americans would see the term accurately applied. Feel free to disagree.

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