The U.S. Department of Labor is suing Bethesda, Md.-based Dynasty Construction Inc. and owner John J. Barrett III for breaking fiduciary duty regarding the company's 401(k) plan.
The suit documents state that more than $775,000 from the 401(k) plan were invested in a 2006 fraudulent scheme, which violates the Employee Retirement Income Security Act. The amount invested accounted for nearly all of the accounts' assets for 19 plan participants at the end of 2005.
The suit was brought on by an investigation by the department's Employee Benefits Security Administration and filed in the U.S. District Court for the District of Maryland. According to the suit, the defendants did not adequately or prudently research the credentials of the financial representative they retained. They also didn't properly analyze the investments trusted in the Transcontinental Airlines Employee Investment Savings Account, a fraudulent scheme organized by Louis Pearlman, who is serving 25 years in federal prison.
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"These acts have jeopardized the retirement security of former Dynasty employees by those charged with the responsibility of protecting workers' benefits," says Phyllis C. Borzi, assistant secretary of labor for employee benefits security. "The Labor Department will not stand for it, and we will take all actions necessary to make sure workers receive their hard-earned benefits."
The purpose of the suit is to restore all plan losses, including interest and lost opportunity costs. The suit is also looking to require that the defendants provide all books, documents and records regarding the plan's finances and administration while removing the defendants as plan fiduciaries. If the DOL's suit is successful, the defendants would be permanently banned from acting directly or indirectly in any fiduciary capacity for any employee benefit plan as well as practicing any custody, control or decision-making authority in regards to the assets of any employee benefit plan covered by ERISA. An independent fiduciary would be named to manage and administer the plan.
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