TPA Theft Suit Adds Another Party
A suit against third-party administrator Vantage Benefit Administrators has been amended to include another party alleged to be complicit in the theft of money from a number of retirement plans.
Last December, MBA Engineering Inc. had accused Vantage Benefits Administrators, Inc., Vantage CEO Jeffrey A. Richie and Vantage CFO Wendy K. Richie of stealing approximately $2,269,653.43 from the company’s retirement plans between June 3, 2016 and June 7, 2017, and since prior to those transfers, the plans’ total combined balance was approximately $2.5 million, “…the Vantage Defendants’ scheme was simply catastrophic to the Plans and the participants’ retirement savings.”
The action followed an Oct. 31 raid
by the Federal Bureau of Investigation on the offices of Vantage Benefits Administrators “amid concerns that money may be missing from retirement accounts the company manages.” Vantage Benefits described itself as a full-service TPA specializing in corporate benefit programs, with a focus on small plans (under $10 million).
The MBA suit, filed in December, outlined a scheme whereby Vantage directed Matrix Trust Company to make a series of transfers from the plan trust accounts to an account maintained by Vantage at Bank of America “without any authorization or direction from MBA, as the plan sponsor and the plan administrator.”
The now-amended complaint, which adds Matrix Trust Company as a defendant, charges that the Vantage defendants “misappropriated the Plans’ assets through thirty-five fraudulent transfers made by Matrix to Vantage Benefits over the course of twelve months,” and that “Matrix made these numerous and substantial transfers of ERISA plan assets directly to Vantage Benefits without any direction or authorization of any kind from MBA or Meidinger as the ERISA administrator and the Trustee, respectively, of the Plans.”
The plaintiffs charge that, “by holding the assets of the Plans without any authorization from the Plaintiffs and by making the transfers of assets of the Plans to Vantage Benefits without any authorization or direction by Plaintiffs, Matrix exercised authority and control over the assets of the ERISA governed Plans and held fiduciary status as to the Plans under ERISA.” The complaint claims that “Matrix knew that all of the thirty-five fraudulent transfers were made to the same business bank account held in the name of Vantage Benefits itself, and not in the name of the Plans, and that the transfers depleted nearly the entire multimillion-dollar account balance held in the names of the Plans at Matrix.”
As was noted in other litigation involving Vantage, here many of the transfers used fake participant names and Social Security numbers. What is different here is that the plaintiffs state that “Matrix took no action to protect the MBA ERISA Plan assets held within its possession and control,” and that “upon information and belief, Matrix made similar transfers to Vantage Benefits of assets totaling more than $11,000,000 from the accounts of approximately twenty other retirement plans.”
This particular complaint charges that before making those fraudulent transfers to Vantage Benefits, Matrix “took possession and control of millions of dollars of assets of the Plans without there being any written, or even oral, agreement between Matrix and the Plaintiffs or the Plans.” Moreover, the plaintiffs claim that “there is no, and never has been, any agreement whatsoever between Plaintiffs or the Plans, on one hand, and Matrix, on the other hand, concerning the Plans and the assets of the Plans,” nor is there, and never had been any agreement between the plaintiffs or the Plans and Matrix “that authorized Matrix to make transfers of the assets of the Plans at the instruction or direction of the Vantage Defendants.” Nonetheless, the suit alleges that “Matrix unilaterally completed each fraudulent transfer of assets of the Plans into the Vantage Benefits bank account solely at the instruction and direction of the Vantage Defendants,” and not only “…never informed the Plaintiffs that the transfers were being made,” but “…never provided the Plaintiffs with the monthly trust account statements it produced for the Plans,” and “…never communicated at all with the Plaintiffs either orally or in writing.”
Moreover, the plaintiffs claim that, solely at the direction of the Vantage Defendants, and “without any authority from the Plaintiffs,” Matrix completed each fraudulent transfer on a non-reportable basis for federal and state tax purposes, “even though these types of retirement plan distributions are required to be reported to the Internal Revenue Service,” and that “without receiving trust statements showing the actual and depleted balances of the Plans’ accounts at Matrix and without receiving copies of IRS required reporting documents,” the plaintiffs “did not, and could not have, reasonably discovered the theft until the Vantage Defendants had stolen nearly all of the Plans’ assets.” Indeed, they note that they “did not discover the theft of the Plans’ assets until federal law enforcement authorities raided the Vantage Benefits office and shut down the operation of Vantage Benefits.”
The suit notes that “the Vantage Defendants misrepresented the value of participant account balances in the Plans by falsifying account statements and information on the Vantage Benefits participant website in order to maintain the appearance that the participant accounts contained the appropriate funds,” with the “…intent to defraud the Plans’ participants and Plaintiffs and to hide the Vantage Defendants’ fraudulent conduct,” and that both the plaintiffs here, and the plans’ participants, “…relied on the Vantage Defendants’ misstatements to their extreme detriment,” specifically that, between June 2016 and June 2017, “the Vantage Defendants siphoned off to their own use millions of dollars from the assets of the Plans.”
While the suit states that the Vantage Defendants and Matrix “must repay the assets stolen and unilaterally transferred from the Plans, with lost earnings or interest,” the complaint goes on to note that “in light of the depravity of the Vantage Defendants’ fraudulent scheme, Plaintiffs seeks exemplary damages against the Vantage Defendants based on their outright fraud,” as well as an injunction “to stop the Vantage Defendants from further illegally transferring the Plans’ assets, and barring the Vantage Defendants from performing services to any employee benefit plans in the future.” They also seek “a writ of attachment of any property or Plan assets in the Vantage Defendants’ possession or control, in an amount necessary to secure the Vantage Defendants’ debt to Plaintiffs,” to “prevent further damage to the Plans.” Those exemplary damages requested are in the amount of $6,808,960.29.
The suit characterizes Matrix’ role as that of a “functional fiduciary,” with respect to the plans in question “because it, in fact, exercised authority and control over the Plans’ assets.” The suit notes that Matrix “exercised authority and control” over the plans’ assets by “unilaterally disbursing those assets without any authorization or direction from Plaintiffs,” going on to note that saying “Matrix did not have control over the Plans’ assets while Matrix held them is to say that no one had control during this time.”
The suit alleges that “even though Matrix knew that the Vantage Defendants were not the account holders or depositors of the Plans’ assets it held, Matrix completed each fraudulent transfer solely at the instruction of the Vantage Defendants, without authority or direction from the Plaintiffs or the Plans,” and that “this unauthorized disposition of ERISA plan assets renders Matrix an ERISA fiduciary.”
In its claim for relief against Matrix, the plaintiffs note that a fiduciary is “liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan” when they participate “knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach,” or if by a failure in the administration of their “specific responsibilities which give rise to his status as a fiduciary, he has enabled such other fiduciary to commit a breach,” or “if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach.”
The suit does reference a Nov. 25, 2014, “Letter of Acceptance” sent from Matrix (then known as MG Trust Company) to Fidelity Investments, which was then the MBA 401(k) Plan’s trustee, in which Matrix allegedly acknowledged that it was the “Successor Trustee for MBA Engineering Inc. Employees 401k Plan,” and was appointed as such effective Jan. 30, 2015. The suit notes that Matrix has alleged that this document was forged, “but has not provided Plaintiffs with any evidence to date that supports this claim.”
As for the anticipated argument from the defendants that Matrix was a custodian of the MBA 401(k) Plan’s assets and not a trustee, the suit invokes language from the MBA 401(k) plan document (though it doesn’t indicate that Matrix saw, or was a signatory to that document) as stating that a “Custodian has the same powers, rights and duties as a nondiscretionary Trustee,” and that “any reference in the Plan to a Trustee also is a reference to a Custodian unless the context of the Plan indicates otherwise.”
The plaintiffs also claim that (at least based on their own trust statements) that Matrix was aware that MBA 401(k) Plan participants could only direct their retirement assets into one money market fund or a series of mutual funds that were offered as investment options by the MBA 401(k) Plan, rather than the self-directed brokerage account, such as was offered by Hilltop Securities (to where the funds were transferred). Moreover, as noted above, the suit claims that 25 of the 35 fraudulent transfers were done using fake names and Social Security numbers – and that Matrix “knew or had reason to know that the purported individuals associated with these wire transfers were not participants in the Plans,” and completed these wire transfers “despite the frequency and magnitude of the transfers.” The plaintiffs note that roughly thirty-four (34) large wire transfers were made from the MBA 401(k) Plan over the course of a twelve-month period, “…from a Plan that had only forty (40) active participants at the end of the 2015 Plan year.”
All told, the transfers made by Matrix at the direction of the Vantage Defendants “depleted nearly 88% of the MBA 401(k) Plan’s total value between June 2, 2016 and June 3, 2017.” Similarly, the $94,000 transferred from the cash balance plan amounted to a 45% decrease in the plan’s assets. The plaintiffs also note that while the plan only allowed for distributions in the event of termination, retirement, disability or death, Matrix processed the transfers as “distributions,” even though they were allegedly “aware that some of these participants continued to make contributions into the Plans afterwards.”
Here the plaintiffs claim that Matrix knew that the directed transfers resulted in a nearly 88% reduction in the MBA 401(k) plan’s value, that although Vantage instructed that these wire transfers be styled as “distributions” to be made on a non-reportable basis, that “Matrix knew that if these wire transfers were valid participant distributions, these distributions were required to be reported to the IRS,” and that “Matrix knew or should have known that the Plans only allowed distributions to participants in certain situations,” and yet those “participants continued to make contributions into the Plans,” concluding that Matrix “therefore, knew that the Vantage Defendants were failing to discharge their fiduciary obligations in accordance with the Plans’ terms and ERISA.”
In sum, the plaintiffs argue, “Matrix’s role in making the transfers of funds out of the Plans’ accounts held by Matrix as part of the Vantage Defendants’ fraudulent scheme, and Matrix’s failure to take any action to protect the Plans’ assets, is a breach of Matrix’s fiduciary duties to the Plans and the participants in the Plans. Matrix is equally responsible and liable for the losses suffered by the Plans.”
The retirement accounts of the MBA participants, at least, appear to be “covered.” The suit notes that, once the theft was discovered, they immediately “established new Plan trust accounts, transferred any remaining assets from Matrix’s possession to the new accounts, and loaned additional funds into these trust accounts to make the Plans whole.”
A default judgment was handed down
by Judge David C. Godbey of the U.S. District Court for the Northern District of Texas in early March (Caldwell and Partners Inc. v. Vantage Benefits Administrators
, N.D. Tex., No. 3:17-cv-03459-N, default judgment 3/8/18) – against Vantage Benefits Administrators, Inc. and its CEO Jeffrey A. Richie for $10,170,452 in damages, plus $297,836 in attorneys’ fees and costs for violating the Employee Retirement Income Security Act on behalf of Caldwell and Partners, Inc. (CPI) as sponsor of and on behalf of the Caldwell and Partners, Inc. 401(k) Plan.