Compliance

Trustee Found Liable for Diversification Failures

At various times between 2006 and 2009, according to EBSA findings, the plan was 100% invested in stock warrants. 

By John Manganaro editors@plansponsor.com | July 25, 2017

Based on an investigation conducted by the Employee Benefits Security Administration (EBSA), the U.S. Secretary of Labor filed a civil complaint against Ditch Witch Equipment of Tennessee Inc., an underground utility construction equipment company, and Aubrey Needham, trustee of the company’s profit-sharing plan during the relevant time period.

The department alleges that Needham “acted imprudently when he authorized the investment of plan assets, primarily on margin, in stock warrants and derivative securities without conducting any due diligence or consideration of the investments’ impact on the plan’s level of diversification, liquidity needs or funding objectives.”

At various times between 2006 and 2009, according to EBSA findings, the plan was 100% invested in stock warrants.    

Following EBSA’s complaint to the U.S. District Court for the Eastern District of Tennessee, Knoxville Division, the court granted the secretary’s motion for summary judgment and referred the issues of monetary damage and injunctive relief to a magistrate judge for consideration. Through a consent order and judgment entered July 6, 2017, the court ordered Needham to make restitution of $195,084 to the plan, to sell personal real estate in Blount County, Tennessee, to help achieve restitution to the plan, and appointed a successor fiduciary to distribute plan assets among the non-fiduciary participants and terminate the plan.

The order also enjoins Ditch Witch and Needham permanently from acting as a fiduciary, trustee, agent or representative in any capacity to any employee benefit plan as defined by the Employee Retirement Income Security Act of 1974.

SPONSORED MESSAGES