Restitution from an embezzler

[Guest JPIngold]

I have a client whose CFO embezzled $1.5 million from him. He has a $200,000 balance in the company's 401(k) plan. Does anyone out in BenefitsLink land have any suggestions on how to "encourage" the felon to take a distribution and pay it over in partial satisfaction of the restitution order?

Thanks.

[MoJo]

"Encourage"? Not really. I had a similar situation once - where the "defendant's" attorney convinced the guy that it would show the judge "remorse" which might bode well for him at his sentencing. I worked for the trustee at the time, showed up at the sentencing hearing with distribution paperwork and check in hand. Before the hearing, he signed the paperwork and I gave him the check. End of story for the trustee (but I stuck around to see what happened). He signed the back of the check over to the company as partial restitution.

Didn't sway the judge (he got 15 years in Lucasville - Ohio's rather notorious Big House - and there was a decided odor in the room when he was sentenced). Part of the sentence was also to make restitution (of which his 401(k) distribution was about 8% of what he stole).

Signing over his balance may not be bad in the eyes of a parole board (but also may subject his or her family to financial hardship).

Good luck!

[Guest JPIngold]

Unfortunately, this guy was also sentenced to 15 and served about 16 months and was released. Unbelievable. So, you can imagine how my client feels when he sees the participant equity statement I send him with $200,000 on it.

[ESOP Guy]

I have only had one experience like that and it was like Mojo's but maybe with a happier ending. An ESOP I worked with was sponsored by a bank. They caught a teller stealing. The bank's attorney convinced the DA to agree to make as part fo the plea bargin for a reduced serntence repayment. They way it worked was the teller had to agree to request an ESOP distribution to be deposited into an account at the bank. She then has to agree to turn over the bank account to the bank.

That is the only "carrot" the sponsor has- some kind of deal to support a reduced sentence in exchange for turning over the proceeds of a distribuiton to the sponsor.

Edit:

You added you new comment while I was writing my reply. Obviously my reply isn't relevant.

[david rigby]

There have been a few prior discussions on this topic. As I recall, at least one of them had a reasonable suggestion. Try using the Search function. Suggested key words include embezzle, embezzlement, embezzled, theft, etc.

[Guest JPIngold]

Thanks .... I looked back at some prior discussions and it just seems like they are hard pressed to do anything since the guy is already out. ERISA is a great law, but sometimes it protects the wrong person!!!

[mbozek]

Plan cannot attach participant's assets in a pension plan except if the particpant is a fiduciary who has committed a breach of fiduciary duty involving the plan. But there are other ways to recover plan benefits.

A NJ resident embezzled several hundred thousand dollars from her NY employer. Employer got a judgment against the employee in NY but could not seize assets in Plan because of ERISA. After the employee rolled the plan benefits over to an IRA in NJ, a NJ court held that the retirement benefits could be seized by the NY judgement creditor as a fraudlent convenience because the IRA transfer violated the NJ frauldent transfers act. Gilchinsky v. National westminster Bank, 732 A2d 482 ( NJ 1999).

Retirement benefits can also be attached pursuant to an order for restitution under a generally applicable state criminal law which is not preempted by ERISA. State v. Pulasty, 612 A2d 952 (NJ 1992). There is also an MA case that reached the same result.

[Guest 410b]

Seems to me like a CFO (vs lower level employee in finance/treasury functions) embezzler would be a fiduciary (ethical responsibilities to company) violating fiduciary responsibilities in relation to plan.