Compliance June 25, 2010

(Yet) Another Law Firm Targets BP

Another law firm has launched an “investigation” of the BP 401(k) plan – and they’re apparently looking for potential plaintiffs.
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The law office of Brodsky & Smith, LLC said in a press release that it is investigating BP Corporation North America, Inc. investment of plan participants and beneficiaries assets in company stock or BP American Depository shares.  According to that press release, “The investigation concerns whether administrators breached their fiduciary duties and violated the Employee Retirement Income Security Act of 1974 (“ERISA”) by investing and/or continuing to invest assets in company stock when it was not a prudent investment for participants’ retirement savings”.

The investigation concerns improper behavior that harmed current and former employees that invested in the 401(k) plan; specifically, according to the press release, “administrators failed to disclose the true risks of the Deepwater Horizon rig to participants in the 401(K) plan. As a result, the plan’s investment of nearly 2 billion in Company stock or depository shares has fallen approximately 50% in value”.

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Stull, Stull & Brody has launched a similar investigation (see Another Law Firm Investigating BP 401(k) Plan), as has Milburg LLP (see Law Firm Probing Potential BP ERISA Violations).  An ex-employee of BP Plc has sued the company over losses to BP’s retirement plan caused by the oil rig explosion and oil spill in the Gulf of Mexico (see Ex-Employee Sues BP Over Plan Losses).    

As for the Brodsky & Smith announcement, they note that “If you held BP stock in an individual account under any of the Company’s 401(k) plans and wish to discuss the legal ramifications of the administrator’s investment in Company stock, you may e-mail or call the law office of Brodsky & Smith, LLC who will, without obligation or cost to you, attempt to answer your questions”. 

Compliance June 25, 2010

Consulting Firm Charged with Ponzi Scheme

A Jacksonville, Florida, retirement-benefits consulting firm is facing charges it defrauded government employees through an alleged Ponzi scheme, according to the Securities and Exchange Commission.
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Dow Jones Newswires reports the SEC charged the estate of recently deceased Kenneth Wayne McLeod, his benefits consulting firm, Federal Employee Benefits Group Inc., and his registered investment adviser, F&S Asset Management Group Inc., with fraudulently soliciting government employees to invest in government-bond funds that didn’t exist. According the SEC’s complaint, McLeod allegedly lured many of his investors through retirement-benefits seminars he gave at government agencies nationwide.   

He raised at least $34 million since 1988 from an estimated 260 investors, but he never purchased any bonds, the SEC said. Instead, he used the investors’ retirement savings to conduct a Ponzi scheme, to pay himself, and to pay for lavish entertainment, including annual trips to the Super Bowl for himself and 40 friends, according to the news report.   

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The SEC claims McLeod told investors that their principal would be locked up for various periods of up to eight years, supposedly due to the long-term nature of the fund’s underlying bonds. He also issued some investors false FEBG Bond Fund account statements, which showed fake interest earnings, and gave investors the option to reinvest their quarterly interest earnings rather than receive distributions, which many investors did.   

Based on McLeod’s misrepresentations, some investors rolled over their retirement and savings accounts into the bond fund or invested their inheritances and their children’s tuition savings, the SEC said.   

In addition to emergency relief, the agency is seeking disgorgement against all defendants, as well as money penalties and preliminary and permanent injunctions against FEBG and F&S Asset Management.   

Dow Jones’ attempts to reach FEBG, F&S Asset Management and McLeod’s estate were unsuccessful.

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