The 4 th U.S. Circuit Court of Appeals asserted that trustee Jeffrey S. Browning knew byFebruary 19, 2002 thata $550,000 investment made by theBrowning Equipment, Inc. 401(k) Profit Sharing Plan had gone bad – a victim of what a court would later term a Ponzi scheme.
So, in agreeing with the ruling of a lower court, the 4 th Circuit decided that Browning’s March 18, 2005 suit over the investment was beyond the three-year time limit under the Employee Retirement Income Security Act (ERISA) that expired February 19, 2005. The plan is maintained by the Purcellville, Virginia-based Browning Equipment.
Browning alleged in the suit that benefits consultant Theodore Reeder and broker David Duvich committed the fiduciary breach through their roles in getting the plan in April 1999 to put $550,000 into what was supposed to be a 180-day note that would pay 9.25% interest.
According to the 4 th Circuit, the note never paid off when it was due in October 1999 and, the court decision said, "there is no evidence suggesting that the Trustees inquired as to why payment was not received." The plan ended up only getting one payment of $25,317, the court said.
U.S. Capital Funding, the investment firm offering the promissory note investment, was "in reality a Ponzi scheme," according to the court.
"Because we do not believe that the nature of the transaction was overly factually complex (it involved the purchase of only a single promissory note), and because the alleged breach by the (defendants) is quite egregious (the entire purchase price of $555,000 was unrecoverable), we conclude that the aforementioned facts taken together more than establish that the Trustees had actual knowledge â€¦ no later than February 19, 2002."
The appellate judges said it was unnecessary to decide whether the defendants were, in fact, ERISA fiduciaries because of the finding about the suit being filed after the deadline.
ERISA generally requires that fiduciary breach claims be brought within six years after the breach occurs or within three years after the claimant has actual knowledge of the breach, whichever is earlier.
The ruling is available here .
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