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The
U.S. Department of Labor has obtained a consent judgment and order
requiring the former president of Chicago-based AA Capital Partners
Inc. to restore $50 million in losses to five Michigan pension funds as
restitution for misuse of the plans' assets to benefit the investment
firm and himself. The judgment also bars defendant John Orecchio from
serving in a fiduciary or service provider capacity to any employee
benefit plan governed by the Employee Retirement Income Security Act
(ERISA).
"Fiduciaries have a legal obligation to ensure plan
assets are used only to pay benefits and reasonable expenses of a plan.
Those who violate that trust will be held accountable for their
actions," said Secretary of Labor Hilda L. Solis.
Although
Orecchio has submitted proof of current inability to make restitution,
the consent judgment requires him to submit annual financial statements
to the Labor Department and to pay off the judgment as funds are
received by him.
The Labor Department filed a lawsuit on April
10, 2008, against AA Capital Partners, its co-owner and president
Orecchio, chief financial officer Mary Elizabeth Stevens, and affiliate
AA Capital Liquidity Management, LLC for allegedly misusing plan assets
and charging the plans excessive fees on investments. In July 2008, the
department filed an amended complaint adding an additional count which
alleged that plan assets were imprudently invested in a limited
partnership created to invest in Xyience Inc., a Nevada corporation
which manufactures and sells food, vitamins and beverages, even though
a prudent investigation had not been conducted with respect to this
investment strategy.
The pension plans that suffered losses as a
result of Orecchio's actions covered more than 60,000 participants of
the Carpenters Pension Trust Fund of Detroit and Vicinity, Operating
Engineers Local No. 324 Pension Fund, Michigan Regional Council of
Carpenters Annuity Fund, Millwrights' Local No. 1102 Supplemental
Pension Fund, and Michigan Teamsters Joint Council #43 Pension Fund. As
of April 30, 2006, the pension plans had total assets of approximately
$3.1 billion.
At various times from 2002 to 2006, the defendants
allegedly improperly used $25.9 million of the plans' assets to pay
for, among other things, the operating expenses of the firm,
renovations to a horse farm, and a strip club owned by Orecchio. In
addition, they caused the plans to pay unauthorized fees to AA Capital.
AA
Capital is a registered investment advisory firm to employee benefit
plans, including ERISA-covered benefit plans. The firm created AA
Capital Liquidity Management as the general partner for a fund that
invested in real estate loans and entities that developed real
property. In 2006, AA Capital was placed in the hands of a
court-appointed receiver.
The Chicago Regional Office of the
Labor Department's Employee Benefits Security Administration (EBSA)
investigated this case. The suit was filed in federal district court in
Chicago. Employers and workers can contact the Chicago office at
312-353-0900 or EBSA's toll — free number, 866-444-3272, for help with
problems relating to private-sector health and pension plans.
(Solis v. AA Capital Partners, Inc.) Civil Action No. 08-cv-2029
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