DOL Obtains Judgment against Former President of Chicago Investment Firm
The Department of Labor has obtained a consent judgment and order requiring the former president of Chicago-based AA Capital Partners Inc. to restore $50 million in losses to five Michigan pension funds as restitution for misuse of the plans' assets to benefit the investment firm and himself (Solis v. AA Capital Partners Inc., Civil Action No. 08-cv-2029).
The judgment also bars defendant John Orecchio from serving in a fiduciary or service provider capacity to any employee benefit plan governed by the Employee Retirement Income Security Act (ERISA).
"Fiduciaries have a legal obligation to ensure plan assets are used only to pay benefits and reasonable expenses of a plan. Those who violate that trust will be held accountable for their actions," said Secretary of Labor Hilda L. Solis.
Although Orecchio has submitted proof of current inability to make restitution, the consent judgment requires him to submit annual financial statements to the Labor Department and to pay off the judgment as funds are received by him.
DOL filed a lawsuit on April 10, 2008, against AA Capital Partners, its co-owner and president Orecchio, chief financial officer Mary Elizabeth Stevens, and affiliate AA Capital Liquidity Management LLC for allegedly misusing plan assets and charging the plans excessive fees on investments.
In July 2008, the department filed an amended complaint adding an additional count which alleged that plan assets were imprudently invested in a limited partnership created to invest in Xyience Inc., a Nevada corporation which manufactures and sells food, vitamins, and beverages, even though a prudent investigation had not been conducted with respect to this investment strategy.
The pension plans that suffered losses as a result of Orecchio's actions covered more than 60,000 participants of the Carpenters Pension Trust Fund of Detroit and Vicinity, Operating Engineers Local No. 324 Pension Fund, Michigan Regional Council of Carpenters Annuity Fund, Millwrights' Local No. 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.
At various times from 2002 to 2006, the defendants allegedly 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 owned by Orecchio. In addition, they caused the plans to pay unauthorized fees to AA Capital.
AA Capital 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. In 2006, AA Capital was placed in the hands of a court-appointed receiver.
The Chicago Regional Office of the Labor Department's Employee Benefits Security Administration (EBSA) investigated this case. The suit was filed in federal district court in Chicago.