On Feb. 9, 2012, the DOL filed a lawsuit against John J. Barrett III, the owner of Dynasty Construction Inc., and Dynasty Construction Inc. for breach of fiduciary duty. The DOL seeks to recover more than $775,000 which the company’s 401(k) invested in Transcontinental Airlines Employee Investment Savings Account, an alleged ponzi scheme, in 2006. Dynasty Construction Inc. ceased operations in 2007.
The DOL’s press release announcing this lawsuit states that $775,000 represented nearly all of the assets in the accounts of the 19 plan participants as of the end of 2005. A check of the most recent Form 5500 (5500-SF for calendar year plan year ending Dec. 31, 2010) revealed 19 participants at the end of the 2010 plan year with $47,207 in total plan assets. (hat tip to http://www.FreeErisa.com for the 2010 Form 5500 information.) The 2010 Form 5500-SF was signed by John J. Barrett III on July 27, 2011.
The DOL’s lawsuit alleges that “the defendants failed to adequately or prudently research the credentials of the financial representative they retained, and failed to adequately or prudently research or analyze the investment of plan assets in the Transcontinental Airlines Employee Investment Savings Account”.
The Transcontinental Airlines Employee Investment Savings Account, marketed as EISA, was a $300 million ponzi scheme orchestrated by Louis Pearlman, CEO of a air-charter service in Orlando who became famous in the 1990s for launching a number of boy bands, inclluding *NSYNC and the Backstreet Boys. The Transcontinental Airlines Employee Investment Savings Account promised above-market rates of return with investments 100% insured. Helen Huntley wrote an excellent article about EISA on Dec. 17, 2006 in the Tampa Bay Times. Louis Pearlman was sentenced to 25 years in prison on May 21, 2008 for operating the alleged ponzi scheme for two decades.
The DOL has not announced if it plans to file similar lawsuits against other plan sponsors or fiduciaries who invested plan assets in the Transcontinental Airlines Employee Investment Savings Account.
The Dept. of Justice successfully prosecuted four individuals for conspiracy to commit mail fraud, interstate transportation of securities and money taken by fraud and causing interstate travel in execution of a scheme to defraud related to their sales of investments in EISA. On Dec. 8, 2011, three of those individuals were sentenced to 36 months in federal prison, and one individual was sentenced to 26 months in federal prison.