DOL: Investment Firm's Fund Misuse Leads to $25 Million in Losses

The U.S. Department of Labor has filed suit against Chicago-based AA Capital Partners Inc. and its executives for what Secretary of Labor Elaine Chao described as "gross abuse of the trust that workers and their families placed in the management of these pension funds."

DOL's suit (Chao v. AA Capital Partners Inc., Civil Action Number 1:08-cv-2029) alleges that AA Capital Partners, its co-owner and president John Orecchio, chief financial officer Mary Elizabeth Stevens, and affiliate AA Capital Liquidity Management LLC violated the Employee Retirement Income Security Act (ERISA) by imprudently misusing plan assets and charging the plans excessive fees on investments, causing loses of more than $25 million for five Michigan pension funds.

The suit seeks to restore all losses incurred by the plans as a result of the defendants' improper actions. "We are seeking full restitution to the pension plans, including the illegal profits that the defendants realized at the expense of workers and their families," Chao said.

The pension plans covered more than 60,000 participants of the Carpenters Pension Trust Fund of Detroit and Vicinity, Operating Engineers Local Number 324 Pension Fund, Michigan Regional Council of Carpenters Annuity Fund, Millwrights' Local Number 1102 Supplemental Pension Fund, and Michigan Teamsters Joint Council #43 Pension Fund. As of April 30, 2006, the pension plans had total assets of approximately $3.1 billion, the latest data available.

At various times from 2002 to 2006, the defendants are alleged to have improperly used $25.9 million of the plans' assets to pay for, among other things, the operating expenses of the firm, renovations to a horse farm, and a strip club managed by Orecchio.

In addition, they allegedly caused the plans to pay unauthorized fees to AA Capital Partners. The suit seeks a court order to require that the defendants restore to the plans all losses, return illegal profits, and correct transactions prohibited by law. The suit also asks that the defendants be permanently barred from serving as fiduciaries to any plan governed by ERISA in the future.

AA Capital Partners is a registered investment advisory firm to employee benefit plans, including ERISA-covered benefit plans. The firm created AA Capital Liquidity Management as the general partner for a fund that invested in real estate loans and entities that developed real property. As a result of a Sept. 13, 2006, lawsuit filed by the Securities and Exchange Commission, AA Capital Partners was placed in the hands of a court-appointed receiver.

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