Christine Roberts Posted January 29, 2004 Report Share Posted January 29, 2004 The trustee of a defined benefit plan makes an investment in what seems to be a legitimate investment but is later revealed to be a Ponzi (pyramid) scheme. The plan was an early investor in the scheme and realizes a gain of over $30,000 in the investment. The investment is revealed to be a Ponzi scheme and later investors bring a class action against to recoup their investments. Can they obtain recovery from the DB plan? Can the DB plan participants sue the trustee for fiduciary breach, even thought the plan made money on the investment? Link to comment Share on other sites More sharing options...
mbozek Posted January 30, 2004 Report Share Posted January 30, 2004 yes they can, if the investment causes a loss to the plan, e,g. a ct orders the DB plan to disgourge the profits made in the Ponzi scheme. Usually the only the sponsors of a ponzi scheme are sued for losses, not other investors. mjb Link to comment Share on other sites More sharing options...
GBurns Posted January 31, 2004 Report Share Posted January 31, 2004 What did I miss? If the Plan makes a profit (as per the original post), What are you referring to when you reply stating "if the investment causes a loss to the plan" then later state "disgourge the profits made in the Ponzi scheme" ? If the Plan made a profit by being an early investor then there would not be any loss to the Plan. If there is a loss to a Plan then there would be no profits to disgorge. George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction) Link to comment Share on other sites More sharing options...
mbozek Posted February 2, 2004 Report Share Posted February 2, 2004 In the unlikely event that the plan is forced to return the profits, the plan would have earned 0% on the funds. If the investment is deemed to be imprudent under ERISA, the fiduciaries would be liable for amount the investment would have earned if it was invested prudently. In otherwords a loss under ERISA does not require a negative result. A loss includes the amount that could have been earned if the funds were invested prudently. If the plan could have earned $20,000 on a prudent return and instead earns 0 because it had to return the entire profit then the fids are liable for a loss of 20k. mjb Link to comment Share on other sites More sharing options...
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