Compliance March 23, 2009

Wachovia Securities to Pay $1M to Former Adviser in USERRA Case

March 23, 2009 (PLANSPONSOR.com) - The U.S. District Court for the District of Connecticut has ordered Wachovia Securities to reinstate a former adviser and pay him back pay and damages for violating the Uniform Services Employment and Reemployment Rights Act (USERRA).
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The court ruled that Wachovia Securities constructively discharged reservist Michael Serricchio when it offered him a much less compensated position upon his return from active duty. The court rejected Wachovia’s argument that Serricchio failed to fulfill his obligation to minimize his wage loss by not accepting the inferior offer or by not seeking other employment as a financial adviser.

Serricchio and his wife started a tanning salon after he rejected Wachovia’s offer, and the court cited other cases in which it was found that self-employment was an appropriate way to mitigate the loss of wages.

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Under USERRA, a person returning to employment from military service “is entitled to the seniority and other rights and benefits determined by seniority that the person had on the date of the commencement of service in the uniformed services plus the additional security and rights and benefits that such person would have attained if the person had remained continuously employed.”

After reviewing several expert calculations of what Serricchio’s wages would have been had he remained in continuous employment, the court decided he was due $680,312, less his estimated mitigating earnings of $290,859, for a total back-pay award of $389,453. The court also awarded liquidated damages in the amount of $389,453, for a total of $778,906, plus prejudgment interest, fees, and costs.

In addition, Wachovia was ordered to reinstate Serricchio, effective April 1, 2009, to a financial adviser position with the full package of normal employment benefits in Springfield, Massachusetts, or in another geographically reasonable location. For three months, Wachovia is to pay Serricchio $12,300 per month for a year, after which Serricchio will be responsible for generating his own income through his client accounts.

The court opinion is here .

Compliance March 20, 2009

ERISA Breach Suit Filed a Month Late

March 20, 2009 (PLANSPONSOR.com) - A federal appellate court has ruled that a fiduciary breach suit by a trustee of a Virginia tractor sales and services company's 401(k) Profit Sharing Plan over $525,000 in investment losses was filed a month too late.
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The 4 th  U.S. Circuit Court of Appeals asserted that trustee Jeffrey S. Browning knew byFebruary 19, 2002 thata $550,000 investment made by theBrowning Equipment, Inc. 401(k) Profit Sharing Plan had gone bad – a victim of what a court would later term a Ponzi scheme.

So, in agreeing with the ruling of a lower court, the 4 th Circuit decided that Browning’s March 18, 2005 suit over the investment was beyond the three-year time limit under the Employee Retirement Income Security Act (ERISA) that expired February 19, 2005. The plan is maintained by the Purcellville, Virginia-based Browning Equipment.

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Browning alleged in the suit that benefits consultant Theodore Reeder and broker David Duvich committed the fiduciary breach through their roles in getting the plan in April 1999 to put $550,000 into what was supposed to be a 180-day note that would pay 9.25% interest.

According to the 4 th  Circuit, the note never paid off when it was due in October 1999 and, the court decision said, "there is no evidence suggesting that the Trustees inquired as to why payment was not received." The plan ended up only getting one payment of $25,317, the court said.

U.S. Capital Funding, the investment firm offering the promissory note investment, was "in reality a Ponzi scheme," according to the court.

"Because we do not believe that the nature of the transaction was overly factually complex (it involved the purchase of only a single promissory note), and because the alleged breach by the (defendants) is quite egregious (the entire purchase price of $555,000 was unrecoverable), we conclude that the aforementioned facts taken together more than establish that the Trustees had actual knowledge … no later than February 19, 2002."

The appellate judges said it was unnecessary to decide whether the defendants were, in fact, ERISA fiduciaries because of the finding about the suit being filed after the deadline.

ERISA generally requires that fiduciary breach claims be brought within six years after the breach occurs or within three years after the claimant has actual knowledge of the breach, whichever is earlier.

The ruling is available here .

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