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A Pennsylvania federal judge on February 5 barred the third-party administrator RiversEdge Advanced Retirement Solutions and its president and owner, Paul Palguta, from accessing retirement plan assets serviced by RiversEdge.
The court also allowed Charles Schwab Trust Bank and American Trust Custody to continue to provide asset custody and technology services to the effected plans while the firms cooperate with the DOL. The court, on the same day, also appointed Receivership Management Inc. as an independent fiduciary.
The DOL on January 26 had asked the court to remove RiversEdge and Palguta from serving as fiduciaries and service providers of 17 plans they administer, which were implicated in the theft and to appoint an independent fiduciary to secure plan records, assist with recordkeeping transition activities and perform an accounting of suspicious asset transfers.
The court-appointed independent fiduciary will conduct an accounting of the assets of the 17 client plans listed in the court’s order, including 401(k), 403(b), deferred compensation and profit-sharing plans. Some of the plans are covered by the Employee Retirement Income Security Act of 1974, and some are not.
The DOL argued in briefs filed to court the order was needed to prevent irreparable harm to the plans and participants.
U.S. District Judge Marilyn Horan, presiding in the Western District of Pennsylvania, wrote that she was granting the DOL’s order because “[t]he irreparable injury to be prevented is the harm to the Plans caused by the RiversEdge Defendants’ breach of their fiduciary duties, responsibilities, and/or obligations to the Plans, which includes misuse and misallocation of the Mismanaged Plans’ assets.”
Court Order
Horan’s decision barred RiversEdge, based in Sewickley, Pennsylvania, and Palguta from acting as fiduciaries for ERISA-covered and non-ERISA plans; from acting as service providers to plans; and from exercising any authority or control of plan assets.
Horan also ordered RiversEdge and Palguta to show cause by February 9 why the court should not enter a preliminary injunction to officially approve the order and scheduled a video preliminary injunction hearing for February 14.
The judge also ordered that RiversEdge will pay the independent fiduciary for the full amount of services rendered, up to $238,981.00
Charles Schwab Trust Bank and American Trust Custody, known as the Rule 19(a) defendants in this case, were directed to provide to all affected plans they service through a trust agreement or custodial agreement an immediate copy of the order within five business days of the date of the order
Acting Secretary of Labor Julie Su has alleged no claims against Schwab or American Trust Custody, Horan noted.
“The Rule 19(a) Defendants shall also preserve, secure, and produce to the Independent Fiduciary all books, records, and documents, including electronic files, which relate to the administration, management, and operation of all Plans and their assets,” Horan wrote.
Representatives of Charles Schwab Trust Bank issued the following statement:
“Following the appointment of the independent fiduciary, Schwab will continue to cooperate with the DOL and provide trust/custody and technology services necessary for the continued operation of the impacted plans throughout this process.”
American Trust Custody declined additional comment other than to reiterate “no claims have been alleged against American Trust Custody, a Rule 19(a) Defendant,” according to a spokesperson. “It will continue to work with the Department of Labor, the assigned Independent Fiduciary, and other Rule 19(a) Defendants to assist the affected plans from any potential wrongdoing.”
The Lawsuit
The RiversEdge retirement plan had entered into agreements with the firm, allowing Palguta and others at RiversEdge to execute trades and direct the disposition of the plan’s assets, according to the initial DOL complaint.
Representatives of the court-appointed independent fiduciary, Receivership Management Inc., declined to comment.
The lawsuit is Julie Su, U.S. Department of Labor v. RiversEdge Advanced Retirement Solutions LLC et al.
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