NJ Plan Charged with Spending $800k for 'Improper' Legal Fees

August 9, 2005 (PLANSPONSOR.com) - A bankrupt New Jersey manufacturing company has been slapped with a US Department of Labor (DoL) lawsuit alleging that K plan fiduciaries misused more than $800,000 in plan assets to fund improper legal expenses.

A DoL news release charged that fiduciaries Anthony Scialabba and Morton Batt, and John Elliott II, chairman of the board of directors of Standard Automotive Corporation, of Hillsborough Township, New Jersey, breached their duty under Employee Retirement Income Security Act (ERISA).   Officials charged that the plan paid Scialabba’s law firm for legal services that were “improper, unnecessary and unreasonably costly given the level of plan assets.”

According to the suit, Scialabba approved approximately one-half of the payments by the plan for legal services provided by his firm at various times from September 2001 to July 2003, without get the Standard Automotive board’s approval. After Scialabba resigned in December 2003, Batt approved payment of the balance of the $800,000 and retained Scialabba’s law firm as special counsel to the plan.   Elliott hired both Scialabba and then Batt as trustee of the plan.  

The corporation, a holding company for manufacturers of components for the trucking and aerospace industries, filed for bankruptcy in March 2002.    As of January 2005, the plan had $2,520,316 in assets, according to the DoL announcement.

The Labor Department is seeking to restore the improperly removed funds, along with interest , and to bar Scialabba from serving as a fiduciary or service provider to an ERISA-covered plan in the future.