Psychic Investments Bad Luck for Profit-Sharing Plan

December 26, 2002 ( - Federal officials have taken the president of a now-defunct Ohio military contractor to court to recover hundreds of thousands of dollars in profit- sharing plan losses from an insider loan scheme.

The US Department of Labor’s Pension and Welfare Benefits Administration (PWBA) filed the federal court suit against Lakewood Manufacturing Company of Lakewood, Ohio and president Richard Peplin, Jr., to recover $505,842 lost in numerous loans and asset transfers. The PWBA suit alleged that the loans and transfers benefited Peplin or companies he owned.

According to the PWBA suit, Peplin violated ERISA by investing all of the plan’s assets in risky investments with companies in which he was affiliated. He allegedly loaned plan assets to Viatech Communications Group, Inc. and its subsidiary Psychic Discovery Network, according to the government. The companies stopped operating in August 1997 without repaying the plan loans.

Peplin also didn’t work out agreements between the plan and Viatech for stock investments and made several additional unsecured loans with plan assets to an unrelated individual and other corporations. In addition, the suit charges him with miscalculating the account balances of plan participants, failing to obtain a fidelity bond as required by law, and failing to provide workers with descriptions of the rules of the plan.

Lakewood Manufacturing Company sponsored the profit sharing plan for 19 participants. Peplin was the sole trustee of the profit sharing plan after the retirement of his father in 1996. In 1997, Peplin began to switch the plan’s investments, according to the suit.

The suit seeks a court order to pay back the plan all losses plus interest, to correct all prohibited transactions, to replace the company and Peplin with an independent fiduciary to manage the plan, and to permanently bar them from serving other ERISA-covered plans in the future.