Bankers’ ERISA Misdeeds Headed to Trial

SAN FRANCISCO (CN) - Managers of a private bank broke the law by failing to pay employees cash for their shares in an employee stock-ownership plan, a federal judge ruled.

U.S. Secretary of Labor Thomas Perez sued California Pacific Bank's CEO Richard Chi and board members Akila Chen, Ken Chen and William Mo in August 2013 for violating the Employee Retirement Income Security Act of 1974, or ERISA.

Perez said the defendants triggered losses of $1.39 million by mismanaging the plan in four ways: they failed to liquidate shares after the plan was terminated in 2010, diverted a $132,000 plan payment to the bank, transferred nearly $70,000 in plan assets to the bank and held assets in non-interest bearing accounts, causing the plan to lose interest.

In response, the defendants argued they shouldn't be held liable for those losses because it was "impossible" to liquidate the plan. The bank managers claimed the FDIC "refused to permit the bank to repurchase stock held by the plan participants" for the "sole reason" of the labor secretary's ongoing investigation and subsequent lawsuit.

In a July 20 decision, U.S. District Judge James Donato dismissed that argument, saying the FDIC didn't refuse to permit stock repurchases until Oct. 13, 2011, months after the bank already made distributions in bank shares rather than cash.

The judge also chided bank managers for sending a letter to employees in February 2010 "replete with misinformation" that told them they had "no right to request the bank repurchase their stock at all."

However, because Chi has now offered to buy back shares from employees, the judge said a specific amount of liability cannot be determined at this time, reserving that decision for trial.

Donato also found bank managers improperly steered $81,000 of a $132,000 payment for the stock plan into the bank's assets.

However, he withheld judgment on two other charges leveled by the labor secretary - that the bank transferred nearly $70,000 in plan assets to the bank and that the defendants held plan assets in non-interest bearing accounts.

The judge said a bench trial will take place in November or December to determine a remedy for the bank managers' misdeeds, but he encouraged both parties to explore a mutually agreeable resolution before that time.

A case management conference was scheduled for Aug. 26, and both parties must file joint status statements by Aug. 19.

"I think this order marks another step in recovering retirement assets for the employees who worked for the California Pacific Bank and were counting on this benefit plan to help them with retirement," said Jean Ackerman, regional director for the Labor Department's employee benefits security administration.

The bankers' attorney, Daniel Baxter of Wilke Fleury Hoffelt Gould & Birney of San Francisco, did not immediately return requests for comment.

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