Labor Department Targeting Businesses Violating Overtime, Other Wage & Hour Laws

December 27, 2012

Employers should make reviewing and tightening their worker classification and pay practices a high priority in light of the continuing aggressive investigation and enforcement of minimum wage, overtime and other federal pay law violations by the U.S. Department of Labor (Labor Department) Wage and Hour Division (W&HD).

Latest Enforcement Shows Commitment

The Labor Department’s strong commitment to the investigation and enforcement of federal wage and hour law violations is reflected in its announcement of yet another wave of successful enforcement actions against a wide range of employers during December including the following:

Car Wash Employees Receive Back Wages.  Labor Department officials say Genter’s Detailing Inc. in Frisco, Texas, has paid 53 detail and car wash employees $22,345, following a W&HD investigation that found the employer violated the Fair Labor Standards Act (FLSA) by making illegal deductions from employees’ wages for damages to dealership vehicles, resulting in wages below the federal minimum of $7.25 per hour. The company provides car wash and detailing services to car dealerships in the Dallas-Fort Worth area, in Katy and in Austin.  More Details Here.

Oklahoma Electrical Services Company Pays Back Wages.  Labor Department officials report Lighthouse Electric Inc. in Tulsa, Okla., has paid $42,452 in overtime back wages to 18 current and former electricians following an investigation that found Lighthouse Electric improperly failed to pay employees for time spent traveling to and from their facility to a work site in violation of the FLSA. More Details Here.

Web-based Auto Company Violated FLSA.  Labor Department Officials report Auto Cricket Corp., doing business as AutoCricket.com, has agreed to pay $76,589 in back wages to 414 employees following a W&HD investigation that found the company deducted short rest periods as non-work hours from employee totals of hours worked in violation of the FLSA. Additionally, the company paid overtime for hours worked beyond 80 during a biweekly pay period, instead of time and one-half for all hours worked over 40 in a seven-day workweek. More Details Here.

South Carolina Restaurants Pay $391,000 in Back Wages.  Labor Department officials report that three San Jose Mexican restaurants, individually owned and operated by Eraclio Leon, Gregorio Leon Sr. and Antonio Leon, have agreed to pay $390,960 in back wages to 37 employees after the W&HD found the South Carolina businesses violated the FLSA by failing to properly compensate employees for all work hours. Investigators determined that tipped employees, such as servers, were paid direct wages below $2.13 per hour and kitchen staff were paid flat salaries each month.  More Details Here.

San Francisco Grocer to Pay Back Wages to 25 Workers.  The Labor Department announced a U.S. District Court has ordered Casa Guadalupe to pay $110,071 in overtime back wages and liquidated damages to 25 current and former employees at its three San Francisco stores. The Labor Department also assessed $11,687 in civil penalties against the employer because of the willful and repeat nature of the violations. The grocery store chain admitted not paying required overtime wages. Investigators found similar violations in 2010 that resulted in $6,496 in overtime back wages due to three workers.  More Details Here.

Environment Services Company Pays Back Wages To Misclassified Environmental Scientists.  The Labor Department also announced that Groundwater and Environmental Services Inc., doing business as GES, will pay $187,165 in back wages to 69 employees after the W&HD found FLSA violations resulting from the company’s misclassification of junior environmental scientists and junior baseline samplers as exempt from overtime pay. The company collects water samples from property owners in close proximity to oil and gas well drilling sites for baseline sampling surveys. The investigation was part of a Wage and Hour Division’s multiyear enforcement initiative focused on the oil and gas industry.  More Details Here.

Oklahoma Manufacturer Pays $85,000 for Overtime.  Labor Department officials announced Deerebuilt LLC in Ardmore, Okla., has paid $85,105 in overtime back wages to 112 current and former employees following a W&HD investigation that found that the employer paid “straight time” for all hours worked, failing to pay overtime at time and one-half employees’ regular rates of pay for hours worked beyond 40 in a workweek, as required by the FLSA. The employer paid employees for overtime hours worked on weekends with separate checks, at straight-time rates.  More Details Here.

Oklahoma City Company Faulted for FLSA & Davis-Bacon Violations.  The Labor Department announced that Mallett Plumbing and Utility Co. in Oklahoma City has paid $100,264 in back wages to 19 current and former plumbers after an investigation found violations of the FLSA and the Davis-Bacon Act. The W&HD says the company failed to pay workers for overtime and failed to pay prevailing wage rates and fringe benefits. A W&HD investigation found Mallett Plumbing and Utility paid straight time for all hours worked and failed to pay employees the required wages and fringe benefits applicable to the classifications of work they performed while working on building alterations and construction projects for the Health Resources and Services Administration and the Federal Aviation Administration.  More Details Here.

The Christmas Light Co. Inc.  According to the Labor  Department, an investigation by its Dallas Wage and Hour Division office found that The Christmas Light Co. Inc. violated the FLSA by failing to pay 233 installers and removers the minimum and overtime wages and keep records required by law.  The complaint filed in the Northern District of Texas seeks back wages and liquidated damages of nearly $500,000 and an injunction against future violations of the FLSA.

FLSA Violations Generally Costly;  Enforcement Rising

The enforcement record of the Labor Department confirms that the Labor Department’s suit against the Christmas Light Co. Inc. lawsuit is reflective of a strong enforcement commitment targeting U.S. employers using aggressive worker classification or other pay practices to avoid paying minimum wage or overtime to workers.  Under the Obama Administration, DOL officials have made it a priority to enforce overtime, record keeping, worker classification and other wage and hour law requirements.  See e.g.,  Boston Furs Sued For $1M For Violations Of Fair Labor Standards Act; Record $2.3 Millh ion+ Backpay Order; Minimum Wage, Overtime Risks Highlighted By Labor Department Strike Force Targeting Residential Care & Group Homes; Review & Strengthen Defensibility of Existing Worker Classification Practices In Light of Rising Congressional & Regulatory Scrutiny; 250 New Investigators, Renewed DOL Enforcement Emphasis Signal Rising Wage & Hour Risks For Employers;  Quest Diagnostics, Inc. To Pay $688,000 In Overtime Backpay.  In an effort to further promote compliance and enforcement of these rules,  the Labor Department is using  smart phone applications, social media and a host of other new tools to educate and recruit workers in its effort to find and prosecute violators. See, e.g. New Employee Smart Phone App New Tool In Labor Department’s Aggressive Wage & Hour Law Enforcement Campaign Against Restaurant & Other Employers.    As a result of these effort, employers violating the FLSA now face heightened risk of enforcement from both the  Labor Department and private litigation. 

Employers Should Strengthen Practices For Defensibility

 To minimize exposure under the FLSA, employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take other actions to minimize their potential liability under applicable wages and hour laws.  Steps advisable as part of this process include, but are not necessarily limited to:

  • Audit of each position current classified as exempt to assess its continued sustainability and to develop documentation justifying that characterization;
  • Audit characterization of workers obtained from staffing, employee leasing, independent contractor and other arrangements and implement contractual and other oversight arrangements to minimize risks that these relationships could create if workers are recharacterized as employed by the employer receiving these services;
  • Review the characterization of on-call and other time demands placed on employees to confirm that all compensable time is properly identified, tracked, documented, compensated and reported;
  • Review existing practices for tracking compensable hours and paying non-exempt employees for compliance with applicable regulations and to identify opportunities to minimize costs and liabilities arising out of the regulatory mandates;
  • If the audit raises questions about the appropriateness of the classification of an employee as exempt, self-initiate proper corrective action after consultation with qualified legal counsel;
  • Review existing documentation and record keeping practices for hourly employees;
  • Explore available options and alternatives for calculating required wage payments to non-exempt employees;
  • Consider advisability of tracking hours and activities of employees considered exempt;
  • Evaluate and manage risks of outsourced labor such as leased, contract or other similar “off-payroll” workers;
  • Re-engineerwork rules and other practices to minimize costs and liabilities as appropriate in light of the regulations and enforcement exposures; and
  • Consider and properly coordinate worker classification for health and other employee benefit plan eligibility and other purposes to mitigate risks from unanticipated employee benefit liabilities resulting from misclassification.

Because of the potentially significant liability exposure, employers generally will want to consult with qualified legal counsel before starting their risk assessment and assess risks and claims within the scope of attorney-client privilege to help protect the ability to claim attorney-client privilege or other evidentiary protections to help shelter conversations or certain other sensitive risk activities from discovery under the rules of evidence. 

For Help With Investigations, Policy Updates Or Other Needs

If you need help in conducting a risk assessment of or responding to an IRS, DOL, Justice Department, or other federal or state agencies or other private plaintiff or other legal challenges to your organization’s existing workforce classification or other labor and employment, compliance,  employee benefit or compensation practices, please contact the author of this update, attorney Cynthia Marcotte Stamer here or at (469) 767-8872 .

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, management attorney and consultant Ms. Stamer is nationally and internationally recognized for more than 23 years of work helping employers; employee benefit plans and their sponsors, administrators, fiduciaries; employee leasing, recruiting, staffing and other professional employment organizations; and others design, administer and defend innovative workforce, compensation, employee benefit  and management policies and practices. The Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer often has worked, extensively on these and other workforce and performance related matters.   She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications. For more information about Ms. Stamer and her experience or to get access to other publications by Ms. Stamer see here or contact Ms. Stamer directly. 

About Solutions Law Press, Inc.™

Solutions Law Press, Inc.™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested in exploring other Solutions Law Press, Inc. ™ tools, products, training and other resources here and reading some of our other Solutions Law Press, Inc.™ human resources news here including the following:

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile here. For important information about this communication click here. 

THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2012 Cynthia Marcotte Stamer, P.C.  Non-exclusive license to republish granted to Solutions Law Press, Inc.™  All other rights reserved.

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Company President, Officer Can’t Use Bankruptcy To Avoid Liability For Using Plan Money For Company Operations

December 27, 2012

John Dombek III and John Dombek Jr. cannot use personal bankruptcy to avoid complying with a federal court order to restore $69,521 in health-care premiums and retirement plan contributions withheld from the paychecks of employees at several companies that are part of the JJD Industries in violation of the Employee Retirement Income Security Act (ERISA).  The recent judgement against the two men in Solis v. John Dombek Jr., John Dombek III, Wisconsin Tool & Stamping Co. 401(k) Profit Sharing Plan & Trust, J.D. Acquisition 401(k) Profit Sharing Plan and Trust, and the JJD Industries Group Health Plan is a reminder to business owners, management and others with discretionary control over employee contributions or other plan assets of the importance of ensuring that all employee contributions withheld from pay and other plan assets are used only for appropriate plan expenses and timely deposited in trust or otherwise appropriately  applied.  Businesses owners and managers should treat these and other similar judgmentsas a wake-up call to meet employee benefit funding obligations, not to use plan monies for company operations and to take other required steps to make sure that retirement, health and other employee benefit plans moneys and other responsibilities are properly handled.

Company Leaders Ordered To Restore Misdirected Monies

A Chicago federal court ordered the two men to make restitution of $69,521 of employee contributions withheld from employee pay that the court ruled the Dombeks mismanaged by failing to ensure the timely deposit of these funds with the plans.  See

Dombek III, who is president of the JJD Industries Group, and Dombek Jr. were co-fiduciaries of the Wisconsin Tool & Stamping Co. 401(k) plan and have been ordered to restore $22,164.45 in unremitted contributions and lost opportunity costs to the plan. Dombek III is also liable for an additional $2,222.78 in unremitted contributions and lost opportunity costs to the J.D. Acquisition 401(k) plan.

Dombek III must also restore $45,134.08 in unremitted contributions and lost opportunity costs to the JJD Industries sponsored group health plan. The company contracted with Blue Cross and Blue Shield of Illinois to provide health and dental benefits to the employees of its related companies, including Wisconsin Tool & Stamping Co., J.D. Acquisition Corp., Akorat Metal Fabricators Inc./Smithco Fabricators Inc. and Pavo Inc./Injection Plastics Corp. The companies paid their premiums separately, and premiums were partially funded through weekly employee payroll deductions.

The judgment also bars Dombek Jr. and Dombek III from serving as fiduciaries or service providers to any employee benefit plan subject to ERISA for a period of five years. An independent fiduciary will oversee the termination of the 401(k) plans of both Wisconsin Tool & Stamping and J.D. Acquisition, as well as the distribution of plan assets to eligible participants.

The Dombeks will not be able to claim bankruptcy protection to avoid liability for the judgments.  Dombek Jr. and Dombek III both previously had filed for Chapter 7 bankruptcy protection. The Labor Department filed separate complaints to determine the dischargeability of these obligations and seek the enforcement of any monetary judgment against both individuals to restore the funds to the employee benefit programs. On October 5 and October 16, 2012, the U.S. Bankruptcy Court for the Northern District of Illinois granted the Labor Department’s motions for default judgment, finding that the debts Dombek Jr. and Dombek III owed to the plans were not dischargeable in bankruptcy.

Business Leaders Risk Personal Liability When Employee Contributions Used In Company Operations

The judgement is another reminder to business owners and leaders not to allow employee contributions or other plan assets to be used to pay company expenses or otherwise misdirected.  The judgment is one many enforcement actions that the Department of Labor regularly takes against businesses and business leaders that allow plan assets to be used for company operations or other improper purposes.

“Failing to administer health insurance premiums properly demonstrates a total lack of concern for employees and their families,” said Steve Haugen, director of the Chicago Regional Office of the Labor Department’s Employee Benefit Security Administration. “Incorporating employees’ voluntary salary contributions into the general assets of a company and failing to forward them to the retirement plan are violations of both the law and the trust workers have placed in their employers.”

The judgement shows that owners, operators and managers of businesses that exercise discretion and control over the funding, investment or administration of employee benefit plans or their assets face significant liability for failing to properly fulfill their responsibilities with respect to their employee benefit plans.  Businesses, their owners, board members, officers, and other members of management making decisions about the maintenance, funding, administration, termination, hiring or appointment of fiduciaries or service providers or other matters impacting the employee benefit plan should ensure that they understand the potential implications and responsibilities associated with these activities for themselves and their companies.  Individuals who have authority or responsibility for employee benefit plans who also perform or take part in the performance of other company management functions also should pre-educate themselves about when ERISA may require that their plan responsibilities be put before otherwise applicable responsibilities to their company, appropriate processes for documenting decisions and activities, and other procedures to help position activities to mitigate exposures and promote defensibility.

For Help or More Information

If you need help reviewing and updating, administering or defending your employee benefit, human resources, insurance, health care matters or related documents or practices or with other employee benefits, human resources, health care or insurance matters, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 24 years of work, advocacy, education and publications on leading health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials about regulatory, investigatory or enforcement concerns. 

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and registerto receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources available at ww.solutionslawpress.com. 

THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2012 Cynthia Marcotte Stamer, P.C.  Non-exclusive license to republish granted to Solutions Law Press.  All other rights reserved.

1 Comment | Employee Benefits, Employers, ERISA, Fiduciary Responsibility, Health Plans, Mental Health, Mental Health Parity, Retirement Plans, Tax | Tagged: , , , , , , | Permalink
Posted by Cynthia Marcotte Stamer

Peter Madoff 10 Sentence For Defrauding ERISA Plans Reminder Manage Plan Investment Responsibilities

December 27, 2012

Peter Madoff (Madoff), the former Chief Compliance Officer and Senior Managing Director of Bernard L. Madoff Investment Securities LLC (BLMI), was sentenced on December 20, 2012 to 10 years in prison after he pled guilty among other things, to conspiracy to commit securities fraud, tax fraud, mail fraud, ERISA fraud and falsifying records of an investment adviser.

In addition to the prison term, Madoff also was sentenced to one year of supervised release, ordered to pay a $200 special assessment, and ordered to forfeit $143.1 billion, including all of his real and personal property. This amount represents all of the investor funds paid into BLMIS from 1996 – the start of Madoff’s involvement in the conspiracy – through December 2008.

As part of the defendant’s forfeiture, the Government previously entered into a settlement with Madoff’s family that requires the forfeiture of all of his wife Marion’s and daughter Shana’s assets, and assets belonging to other family members. The surrendered assets include, among other things, several homes, a Ferrari and more than $10 million in cash and securities. Marion Madoff was left with approximately $771,733 to live on for the rest of her life.

Madoff’s Sentence Part of Continuing Actions Seeking To Rectify BLMIS Fraud

Among other things, the Superseding Information against Madoff charged that the overt acts in the conspiracy count also included, among other things, making false statements to investors about BLMIS’s compliance program and the nature and scope of its Investment Advisory business. Madoff pled guilty in June 2012. He was sentenced in Manhattan federal court by U.S. District Judge Laura Taylor Swain.

Manhattan U.S. Attorney Preet Bharara said: “Peter Madoff was a gatekeeper, who was supposed to guard against fraud, but instead enabled it – facilitating his brother Bernie’s breathtaking scheme by falsifying compliance records and lying to both regulators and clients of BLMIS. The decade he will spend in prison and the disgorgement of his assets are a just result. Our efforts to hold to account anyone and everyone who played a role in this unprecedented Ponzi scheme continue.”

According to the Superseding Information to which Madoff pled guilty and other court filings:

  • Madoff was employed at BLMIS from 1965 through December 2008. Beginning in 1969, he became the Chief Compliance Officer (“CCO”) and Senior Managing Director of BLMIS. In his role as CCO, Madoff created false and misleading BLMIS compliance documents, as well as false reports that were filed with the U.S. Securities and Exchange Commission (“SEC”) that materially misstated the nature and scope of BLMIS’s Investment Advisory (“IA”) business.
  • As CCO, Madoff created numerous false compliance documents in which he stated that he had performed compliance reviews of the trading in the BLMIS IA business on a regular basis, when in reality, the reviews were never performed. The false statements were designed to mislead regulators, auditors, and IA clients.
  • In August 2006, BLMIS registered as an investment adviser with the SEC. As a registered investment adviser, on at least an annual basis, BLMIS was required to file forms with the SEC that are used as part of the oversight process of investment advisers. Madoff was integrally involved with both the SEC registration process and in the creation of the forms, known as “Forms ADV,” which were materially false and misleading. The numerous false statements in the Forms ADV created the false appearance that BLMIS’s IA business had a small number of highly sophisticated clients and far fewer assets under management than was actually the case. Madoff also misrepresented that he, as CCO, ensured that reviews of the IA trading were being performed.
  • From 1998 through 2008, Madoff engaged in a tax fraud scheme involving the transfer of wealth within the Madoff family in ways that allowed him to avoid paying millions of dollars in required taxes to the IRS. Most, if not all of the “wealth,” came directly or indirectly from IA client funds held at BLMIS. The schemes in which he engaged also allowed Bernard L. Madoff to evade his tax obligations.
  • The methods by which Madoff engaged in tax fraud included the following:
  • Madoff also arranged for his wife to have a “no-show” job at BLMIS from which she received between approximately $100,000 to $160,000 per year in salary, a 401(k), and health benefits to which she was not entitled.
  • In December 2008, when the collapse of BLMIS was virtually certain, Madoff agreed with others to send the $300 million that remained in the IA accounts to preferred employees, family members and friends. BLMIS collapsed before the funds were ever disbursed. On December 10, 2008, one day prior to BLMIS’s collapse, Madoff also withdrew $200,000 from BLMIS for his personal use.
  • Madoff received approximately $15,700,000 from Bernard L. Madoff and his wife, and executed sham promissory notes to make it appear that the transfers were loans, in order to avoid paying taxes;
  • Madoff gave approximately $9,900,000 to family members, and in order to avoid paying taxes, executed sham promissory notes to make it appear that the transfers of these funds were loans;
  • Madoff did not pay taxes on approximately $7,750,000 that he received from BLMIS;
  • Madoff received approximately $16,800,000 from Bernard L. Madoff from two sham trades, and disguised the proceeds of the trades as long-term stock transactions in order to take advantage of the lower tax rate for long-term capital gains;
  • Madoff charged approximately $175,000 in personal expenses to a corporate American Express card and did not report those expenses as income.

Madoff  Victim Compensation Process Continues

In addition to the sentencing of Madoff, the Government has taken steps to clear the way to begin distributing assets forfeited by Peter Madoff in connection with the victim compensation process by filing a motion requesting that the Court find restitution to be impracticable, A similar motion was granted by United States Circuit Judge Denny Chin, who as a United States District Judge sentenced Bernard L. Madoff in 2009. The Department of Justice intends to return the assets forfeited as a result of the Madoff fraud to victims through the remission process.

Richard C. Breeden was retained to serve as Special Master on behalf of the Department of Justice to administer the process of compensating the victims of the Madoff fraud with the forfeited funds. A former chairman of the SEC, Mr. Breeden is Chairman of Richard C. Breeden & Co., which has been involved in (among other things) the administration and distribution of securities fraud claims since 1996. Among other things, Mr. Breeden has served as Corporate Monitor of WorldCom, Inc. and KPMG under its deferred prosecution agreement with the U.S. Attorney’s Office. Mr. Breeden also served as remission special master in connection with the fraud committed through Adelphia Communications Corporation. In April 2012, more than $728 million forfeited in connection with this Office’s investigation and prosecution of the Adelphia fraud was distributed to approximately 8,500 victims, the largest single distribution of forfeited assets to victims in Department of Justice history.

Now that a new Special Master has been retained, and given the pledge of SIPC Trustee Irving Picard and his counsel to lend their support and resources to the new Special Master for the benefit of the fraud victims, we expect the victim claims process to begin shortly. It is anticipated that victims who filed claims in the SIPA proceeding will not have to refile their claims to be eligible for remission. New information about the remission Special Master, and information about the victim claims process, will be posted on the Office’s Madoff website at http://www.justice.gov/usao/nys/vw_cases/madoff.html as soon as it becomes available, along with a link to a dedicated website Mr. Breeden’s firm will establish in connection with the remission proceedings.

Investment Advisors and Others With Discretion Over Funds Should Exercise Fiduciary Care

While the Madorf scandle represents an exceptionally large and long-standing stream of mishandling of employee benefit funds, the investigations and prosecutions also serve as a reminder of the need to carefully comply with the fiduciary responsibility and other requirements of ERISA and other laws to investment advisors and other employee benefit plan asset service providers, plan committees and fiduciaries and the plan sponsors, boards and other individuals responsible for investing or handling employee benefit monies or choosing the parties that possess and exercise that discretion. 

ERISA generally requires that plan asset investments be made prudently and for the exclusive benefit of participants and beneficiaries.  Service providers or others with discretionary responsibiliity or that are investment managers of plan assets must be prudently selected based on careful credentialing and other procedures.  e No prohibited transactions should be permitted.  Fees and other compensation must be set appropriately and properly reported in accordance with ERISA’s fee disclosure rules.  The actions and performance of parties investing in plan assets and their investment performance must be reviewed and monitored prudently.  Proper bonding must be maintained.  Concerns and questions about these activities must be timely investigated in a prudent manner.  Failure to properly conduct these and other ERISA fiduciary responsibilities can expose responsible parties to personal liability for losses, profits improperly realized, a fiduciary administrative penalties, disqualification to serve in plan fiduciary or other positions, and attorneys fees and other costs of recovery, as well as in certain cases like the Madorff fraud, criminal prosecution.

For Help or More Information

If you need help reviewing and updating, administering or defending your employee benefit, human resources, insurance, health care matters or related documents or practices to monitor or respond to evolving laws and regulations,  drafting or administering programs,  resolving or defending audits, investigations or disputes or other  employee benefit, human resources, safety, compliance  or risk management concerns, please contact the author of this update, Cynthia Marcotte Stamer.

About Ms. Stamer

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 24 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters.

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials concerning regulatory, investigatory or enforcement concerns.

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns  see here or contact Ms. Stamer via telephone at 469.767.8872 or via e-mail to  cstamer@solutionslawyer.net.

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources at www.solutionslawpress.com including:

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©2012 Cynthia Marcotte Stamer.  Non-exclusive right to republish granted to Solutions Law Press.  All other rights reserved.

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Posted by Cynthia Marcotte Stamer