UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

 

ROBERT B. REICH, Secretary of

the United States Department

of Labor, CASE NO.:

Plaintiff,

 

COMPLAINT

 

VS.

Defendants.

 

1. This action arises under Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S. C. § 1001 et seq. , as amended, and is brought by the Secretary to obtain relief under ERISA §§ 409 and 502, 29 U.S.C. §§ 1109 and 1132, in the form of equitable remedies that will redress violations and enforce the provisions of Title I of ERISA.

2. This Court has subject matter jurisdiction over this action pursuant to ERISA § 502(e)(1), 29 U.S.C. § 1132(e)(1).

3. Venue with respect to this action lies in the District of Connecticut pursuant to ERISA § 502 (e) (2) , 29 U.S. C. § 1132 (e) (2) .

 

4. The Secretary, pursuant to ERISA §§ 502(a)(2) and (5), 29 U.S.C §1132 (a) (2) and (5), has the authority to enforce the provisions of Title I of ERISA by, among other means, the filing and prosecution of claims against fiduciaries and other parties who commit violations of ERISA.

5. Steven G. Hassenmiller ("Hassenmiller") , at all times relevant herein, exercised discretionary authority and discretionary control respecting the management and the disposition of the assets of the Connecticut Plumbers & Pipefitters Pension Fund and the Connecticut Plumbers & Pipefitters Pension Plan (collectively, the "Fund").

Hassenmiller, at all times relevant herein, also had the authority and responsibility to, and actually did, provide investment advice for a fee and other compensation, direct and indirect, with respect to moneys and other property of the Fund. Hassenmiller is therefore a fiduciary of the Fund within the meaning of ERISA 3(21)(A), 29 U.S.C.§1002 (21) (A) . Hassenmiller is a registered broker with Series 2, 7 and 63 licenses.

Defendants Frank R. Krzywicki, Hubert J. Barnes, Cameron Champlin, John T. Higgins, Eugene Hull, John W. Olsen, William P. Shannon, U. Arthur Spose, Robert K. Hilton, Robert A. Polisky, Gregory Salmini, Alan Spose, Fred Otto, and Thomas Debrinski, (collectively, the "Trustees") are or have been the trustees of the Fund at all times relevant herein and are fiduciaries of the Fund within the meaning of ERISA § 3(21)(A), 29 U.S.C. 1002(21)(A).7. The Fund is an "employee pension benefit plan" within the meaning of ERISA § 3(2), 29 U.S.C. § 1002(2) and the Fund and its assets are subject to ERISA pursuant to ERISA § 4(a), 29 U.S.C. § 1003(a). The Fund is located in Wallingford, Connecticut. The Fund is a non-contributory defined benefit plan which was created in 1957 pursuant to an Agreement and Declaration of Trust between the Mechanical Contractors Association of Connecticut and the United Association of Journeyman and Apprentices of the Plumbing Pipefitting Industry of the United States and Canada, AFL-CIO ("unions") , as a joint union-employer trust pursuant to Section 302 of the Labor Management Relations Act, 29 U.S.C. § 186, to provide pension benefits to members of the unions.

The Connecticut Plumbers & Pipefitters Pension Fund and the Connecticut Plumbers & Pipefitters Pension Plan are named as defendants in this action pursuant to Rule 19 (a) of the Federal Rules of Civil Procedure solely to assure that complete relief can be granted.

 

8. Pursuant to the Fund documents, at all times relevant herein, the Trustees had the exclusive authority and discretion to manage, control, invest and reinvest the assets of the Fund except where they delegated that authority to an investment manager in accordance with the provisions of ERISA §§ 3(38)(B) and (C), 29 U.S.C. §§ 1002 (38) (B) and (C) . As part of any such delegation, the Trustees were required by the Fund documents to establish written guidelines which had to be agreed to by the investment manager. Prior to their dealings with Hassenmiller, it was the Trustees’ practice to comply with these guidelines. No such agreement was ever obtained by the Trustees from Hassenmiller nor did the Trustees ever establish written guidelines for Hassenmiller to follow.

 

9. After making a "cold call" to one of the Trustees on March 4, 1988, Hassenmiller, then working at Westcap Government Securities ("Westcap") , made a presentation to the Trustees for the investment of $2,600,000 by the Fund in highly volatile and risky mortgage-backed securities. During his presentation, Hassenmiller represented to the Trustees that these investments would perform well in both rising and declining interest rate environments. Hassenmiller did not explain, nor did the Trustees inquire about, the many risks involved with these mortgage-backed securities. Subsequent to this meeting, the Trustees agreed to Hassenmiller’s suggestions, and on, March 24, 1988, caused the Fund to purchase $2,600,000 in mortgage-backed securities through Hassenmiller.

10. Thereafter, starting in November of 1990, and continuing through February of 1994, the Trustees caused the Fund at Hassenmiller’s direction to make numerous purchases and sales of mortgage-backed securities through Hassenmiller and his employers Paine Webber, Westcap and Arbour Financial Corporation. In all, from March 1988 through February 1994, the Fund purchased at least 77 mortgage-backed securities totalling over $164,000,000.

11. From March of 1988 through February of 1994, Hassenmiller was responsible for managing the Fund’s investments in mortgagebacked securities. During this time, Hassenmiller made regular reports to the Trustees including written and oral reviews of the Fund’s investment in mortgage-backed securities. Hassenmiller regularly appeared at meetings of the Trustees to update them on the status of their mortgage-backed security investments and advise the Trustees as to a recommended course of action.

12. Further, during this time, Hassenmiller rendered investment advice to the Trustees and the Fund on a regular basis pursuant to a mutual understanding between Hassenmiller and the Trustees and the Fund that Hassenmiller’s advice would serve as a primary basis for investment decisions with respect to Fund investments in mortgage-backed securities and that Hassenmiller would render individualized investment advice to the Fund based on the particular needs of the Fund regarding these investments. Hassenmiller regularly provided the Trustees and the Fund with advice regarding investment policies and strategy, overall portfolio composition, and diversification of plan investments pursuant to this understanding.

13. At all times, with the Trustees’ acquiescence, Hassenmiller acted as an investment manager of the Fund’s investments in mortgage-backed securities and exercised full discretion and authority in determining which mortgage-backed securities to buy and sell, and the timing of those transactions.

14. Further, the Trustees appointed nobody other than Hassenmiller to review the Fund’s mortgage-backed security investments, nor did the Trustees themselves perform such a review. In July of 1989 the Trustees were advised by their outside advisors to retain investment managers to manage the mortgage-backed securities purchased in 1988. Even though this recommendation was accepted by the Trustees, no action was taken by the Trustees in this regard.

15. Later, in August of 1990, the Fund’s outside advisors reviewed a proposal by Hassenmiller for the Fund to purchase Z tranche bonds (one of the riskiest classes of mortgage-backed security then on the market). The outside advisors provided the Trustees with a written report responding negatively to this proposal and warned the Trustees in the report not to devote any more Fund assets to Hassenmiller without providing for ongoing active supervision. Hassenmiller was provided with a copy of the Fund’s outside advisors’ report.

16. Hassenmiller responded in writing to the outside advisors, report on August 28, 1990. In his response, Hassenmiller asserted that active management of the mortgage-backed securities was not needed or required by the Fund because, "Your current investments are monitored daily by me".

17. From 1988 through April of 1994 the Trustees lacked a sufficient understanding of the mortgage-backed securities to make prudent decisions regarding the timing and price of both their purchase and sale. During this time, the Trustees failed to adequately investigate the numerous risks inherent in the Fund’s investment in mortgage-backed securities, particularly the many highly risky "inverse floaters" which Hassenmiller caused the Fund to purchase.

18. In April of 1994, the Trustees hired Criterion Investment Management ("Criterion") to take over management of the mortgagebacked securities from Hassenmiller. Criterion informed the Board that the Fund’s mortgage-backed security portfolio was improperly volatile, that it had gone down in value, and advised shifting the Fund out its current mortgage-backed securities and into longer exposure securities. By June of 1994, all of the mortgage-backed securities purchased through Hassenmiller were sold by the Fund at a total loss in excess of $5,500,000.

 

 

19. Paragraphs 1 through 18 above are incorporated herein as though fully set forth by this reference.

20. As set forth more fully above, the Trustees:

21. By these acts, the Trustees failed to act solely in the interests of the Fund’s participants and beneficiaries and for the exclusive purposes of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the Fund, all in violation of ERISA § 4 04 (a) (1) (A),29 U.S.C. § 1104 (a) (1)(A).

 

SECOND CLAIM FOR RELIEF

BREACH OF DUTY OF PRUDENCE BY THE TRUSTEES

22. By these acts, the Trustees failed to act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims in violation of ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B).

 

THIRD CLAIM FOR RELIEF

BREACH OF DUTY TO ACT IN ACCORDANCE WITH PLAN DOCUMENTS BY THE TRUSTEES

23. By these acts, the Trustees failed to act in accordance with the documents and instruments governing he Fund in violation of ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D).

 

CLAIMS FOR RELIEF AGAINST HASSENMILLER

24. Paragraphs 1 through 18 above are incorporated herein as though fully set forth by this reference.

25. As set forth more fully above, Hassenmiller:

(a) Never conducted an appropriate evaluation of the mortgage-backed securities purchased for the Fund,

(b) Caused the Fund to purchase mortgage-backed securities which were overly risky investments for the Fund,

( c) Caused the Fund to purchase mortgage-backed securities which were inappropriate investments for the Fund, and

(d) Failed to balance the risks caused by his investments of Fund assets in mortgage-backed securities.

 

FOURTH CLAIM FOR RELIEF

BREACH OF DUTY OF LOYALTY BY HASSENMILLER

26. By these acts, Hassenmiller failed to act solely in the interests of the Fund’s participants and beneficiaries and for the exclusive purposes of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the Fund, all in violation of ERISA § 4 04 (a) (1) (A) , 2 9 U.S. C. § 1104(a)(1)(A).

FIFTH CLAIM FOR RELIEF

BREACH OF DUTY OF PRUDENCE BY HASSENMILLER

27. By these acts, Hassenmiller failed to act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims in violation of ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B).

 

HASSENMILLER AND THE TRUSTEES’ LIABILITY

FOR THEIR OWN BREACHES OF DUTY

28. Hassenmiller and each of the Trustees who breached their responsibilities, obligations and duties to the Fund as set forth above, are personally liable to make good to the Fund any losses to the Fund resulting from each such breach, to restore to the Fund any profits which have been made through use of assets of the Fund by them, and are subject to such other equitable and remedial relief as the court may deem appropriate, including removal as a fiduciary, pursuant to ERISA § 409(a), 29 U.S.C. § 1109(a).

 

HASSENMILLER AND THE TRUSTEES’ LIABILITY AS CO-FIDUCIARIES

29. With respect to the breaches by Hassenmiller and each of the Trustees of their fiduciary responsibilities set forth above, Hassenmiller and each of the Trustees are liable for such breach by the other pursuant to ERISA § 405(a)(1), 29 U.S.C. § 1105(a)(1), since they knowingly participated in each such breach by the other fiduciaries knowing such act to be a breach.

30. With respect to the breaches by Hassenmiller and each of the Trustees of their fiduciary responsibilities set forth above, Hassenmiller and each of the Trustees are liable for such breach by the other pursuant to ERISA § 405(a)(2), 29 U.S.C. § 1105(a)(2), since they failed to comply with their duties under ERISA § 404(a)(1), 29 U.S.C. §1104(a)(1), in the administration of their specific responsibilities which gave rise to their status as a fiduciary, thereby enabling the other fiduciaries to commit a breach.

31. With respect to the breaches by Hassenmiller and each of the Trustees of their fiduciary responsibilities set forth above, Hassenmiller and each of the Trustees are liable for such breach by the other pursuant to ERISA § 405(a)(3), 29 U.S.C. § 1105(a)(3), since they had knowledge of a breach by the other fiduciaries, and failed to make reasonable efforts under the circumstances to remedy the breach.

 

PRAYER FOR RELIEF

WHEREFORE, the Secretary of Labor prays that this Court enter an Order:

1. Requiring Hassenmiller and each of the Trustees to make good to the Fund any losses to the Fund resulting from each of their breaches, including lost opportunity costs or interest thereon;

2. Requiring Hassenmiller and each of the Trustees to restore to the Fund any profits that have been made through use of assets of the Fund by them, plus interest thereon;

3. Removing each of the Trustees as a fiduciary of the Fund;

4. Permanently enjoining each of the Trustees and Hassenmiller from acting as a fiduciary or service provider to an employee benefit plan in the future;

5. Permanently enjoining each of the Trustees and Hassenmiller from violating any of the provisions of ERISA in the future;

6. Awarding plaintiff, the Secretary of Labor, the costs of this action; and

7.. Granting such other relief as may be equitable, just and proper.

Respectfully submitted.

DATED this day of 1996.

J. DAVITT McATEER

Acting Solicitor of Labor

MARC I. MACHIZ

Associate Solicitor

Plan Benefits Security Division

 

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