Compliance November 1, 2022

CEO Pleads Guilty to Fraud, Failing to Pay 401(k) Contributions

Maddox Group’s Adam Belardino faces up to 45 years in prison for wire fraud and making false statements to the IRS.

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The CEO of New York-based financial advisory firm The Maddox Group has pled guilty to two counts of wire fraud and one count of making a false statement to the IRS for defrauding clients and failing to pay contributions made by his employees to the firm’s 401(k) plan. 

According to the U.S. Attorney’s Office for the Southern District of New York, Belardino started a retirement savings plan on behalf of the Maddox Group employees, effective at the beginning of 2020 and served as the trustee of the plan. He pled guilty to failing to deposit a little over $8,000 into the plan’s trust account that he had withheld from the paychecks of the four Maddox employees other than himself who participated in the plan.  

The U.S. Attorney’s office said Belardino instead converted the funds meant for the 401(k) plan for his personal use and for the company’s use. And the charge of making a false statement to the IRS stems from Belardino authorizing the retirement plan administrator to file an IRS form in which he falsely answered that there was no failure to transmit to the plan any participant contributions.

Belardino also pled guilty to embezzling more than $313, 000 from one his clients. According to an unsealed indictment, Belardino had managed the client’s investments at another firm before he founded Maddox in July 2019. That following month, he convinced the client to liquidate some of her portfolio and transfer the funds to Maddox to invest. However, the indictment said that instead of investing the client’s money, he used it to pay his company’s operating expenses, including payroll and office rent, personal travel and personal credit card charges.

The indictment said that the client instructed Belardino to transfer her portfolio at Maddox to another firm; however, despite telling the client and her family members he was liquidating the portfolio and would return the funds shortly, the client never received any funds by wire, and the checks Belardino had deposited were returned due to insufficient funds.

Belardino also pled guilty to obtaining fraudulent life insurance commissions. According to U.S. Attorney’s office, Belardino served as the agent for an unnamed insurance company in connection with an application by another client for a life insurance policy with a face amount of $1 million, which was eventually increased to $18 million.  As an agent, Belardino received commissions from the insurance company once the client’s application was approved.

Belardino also applied for two more life insurance policies on behalf of the client without their knowledge or authorization with a face value of $3 million and $5 million respectively.  While applying for the policies, Belardino lied about the client’s net worth and health, and increased the face amount of one insurance policy to $6 million and the other to $12.1 million again without knowledge or authorization.  He also paid and attempted to pay the policy premiums of $194,280 and $105,000 respectively with the client’s funds, while at the same time receiving nearly $200,000 in commissions.

Belardino, 37, pled guilty to two counts of wire fraud, each of which carries a maximum sentence of 20 years in prison, and one count of making a false statement to the Internal Revenue Service, which carries a maximum sentence of five years in prison. 

Ask the Experts November 1, 2022

What Are the Limits on a 457(f) Plan?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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“I work for a public university that sponsors a 403(b) and 457(b) plan, and is currently considering the addition of a 457(f) plan. Now, I know that we can allow all employees to participate in our 403(b) and 457(b) plans, but our recordkeeper is saying that the 457(f) must be limited to select management and highly compensated employees. Is this correct?”

 

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Kimberly Boberg, Taylor Costanzo, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

 

Assuming that your plans qualify as governmental plans, no. The limitation of 457 plans (both (b) and (f)) to select management and highly compensated employees is a method of avoiding ERISA requirements under what is called a “top hat” arrangement. However, as governmental plans, your plans are already exempt from ERISA, and thus the “top hat” exemption is not necessary. Thus, all employees, or any employees of your choosing, are permitted to participate in a 457(f) plan should you choose to establish one. If you were a private university, however, you would need to limit 457 plan participation to select management and highly compensated employees.

 

Note, however, that even though all employees can technically be eligible for your 457(f) plan, the primary purpose of such a plan is to provide supplemental benefits to executives and these plans function a bit differently than what you see with qualified plans (e.g., relating to the taxation of contributions). It should also be noted that there are alternatives methods of providing such benefits as well, such as a 401(a) plan or a 415(m) plan. Outside retirement plan counsel should be consulted regarding your options here.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice. 

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.

 

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