Jump to content

Plan Invests in Ponzi Scheme


Recommended Posts

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

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

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

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...