Trans Continental/Louis Pearlman

[Guest Dan Shea]

This is a strange set of events, participant in plan (self directed investment control) invested in Pearlman's Ponzi scheme unknowingly. as TPA we asked who are these people you invested with (original date 03/98 additional amts next 4 years) we advised perhaps prudence would be get your money back and stay with known entities. account closed out in full 11/03 after several requests. Now comes trustee of bankruptcy (filed 3/07) who asks funds be returned under "unjust enrichment payments". question is can bankruptcy court sue participant under 401 k plan since it is generally exempt from creditors claims? One little guy (70 + years of age got out skin intact) be held liable for pearlmans scam?He does not have a lot on money to hire attorney any help is appreciated!

[J Simmons]

If the only theory being advanced by the bankruptcy TEE is 'unjust enrichment', I think that the plan should prevail and not have to disgorge anything. Unjust enrichment acknowledges that the plan has legal title to the funds in question, just that the equities in favor of the bankruptcy estate outweigh those that run in favor of the plan. That is, the plan owns the funds and the bankruptcy TEE is asserting a claim.

On the other hand, if constructive trust is the theory or something else that posits that the plan never acquired an ownership right, then the clawback sought by the bankruptcy TEE might prevail. Under such theories, the plan TEE is merely holding such funds for the bankruptcy estate even though the plan TEE was under the mistaken belief it was holding those funds for the benefit of the participant/employee.

Don't know of any legal authority to cite for this distinction.

[K2retire]

But if the plan was terminated in 2003, it no longer exists to hold anything.

[J Simmons]

It's how the funds were so characterized when the plan came into possession.

If the plan TEE was holding the funds in question in constructive trust and then paid them out to the EE in 2003, the plan TEE violated its constructive trust duties and could yet be held liable to make the bankruptcy estate whole. Also, the clawback could follow the funds into the hands of the employee. The termination of the plan in 2003 does not resolve the bankruptcy TEE's claims.

[Guest Dan Shea]

sorry about the confusion but the plan is still ongoing (the 11/03 close out was investment by plan in pearlmans scheme they closed it and all monies were returned to the plan), the individual invovlved is still working and participating in the plan.