Enzi Warns States on Pension Fraud

June 15, 2005 (PLANSPONSOR.com) - A US Senator has urged the nation's governors to be particularly wary of pension fraud attempts similar to that from the now defunct Capital Consultants, LLC, a Portland, Oregon investment manager.

Senator Mike Enzi (R-Wyoming), chairman of the Senate Health, Education, Labor and Pensions Committee, included the warning in letters sent to all 50 governors, which also focused on the results of his committee’s inquiry into the Capital Consultants scandal. Before federal regulators closed Capital Consultants, it lost over $500 million in pension funds, affecting at least 300,000 pension plan participants and beneficiaries, in what has been called the largest pension fraud in US history (See  Labor Department Sues Trustees Of Union Health Plans ).

“Stakeholders on all sides of the pension issue are coming to Congress seeking reforms that will help them get the financial affairs of their pension plans in order,” Enzi said in a statement released Wednesday.  “It is essential that our state governments, like Congress, understand the scope and cause of the troubles plaguing so many plans and be aware that the pension funds due their constituents could be at risk.  Facing the issue of pension fraud is one battle we must fight together in order to achieve substantive pension reform.”

In outlining the committee’s Capital Consultants findings, Enzi noted that:

  • pension plans are subject to fraud by a host of individuals, from administrators and third party administrators to investment advisors and other plan fiduciaries
  • pension plan trustees must be “vigilant and meticulous” about their fiduciary duties
  • attorneys for plan participants collaborated to mediate a settlement agreement with the law firms, accounting firms, insurance companies and others who enabled the Capital Consultants fraud. Currently, more than $370 million – approximately 75% of the amount originally lost – has been recovered. 

Capital Consultants has been in receivership since September 2000. In March 2004, the US Department of Labor obtained consent orders requiring payment of $4.875 million to 12 plans in California, Nevada and Utah plus $975,000 in civil penalties (See  DoL Reaches $4.8M Capital Consultants Settlements ).

Since April 2002, the DoL has sued trustees of 19 additional union plans in Oregon, Idaho, Colorado, Ohio and Minnesota for authorizing imprudent investments.   Criminal charges have been filed against 11 individuals (SeeLabor Department Sues Trustees Of Union Health Plans).   Nine have been convicted or have entered guilty pleas.