Criminal Penalties Under
ERISA: Pitfalls for
Unwary or Unwitting
Fiduciaries
ABA Section of Labor & Employment
Law
Benefits Committee
2013 Midwinter Meeting
February 21, 2013
Presented By:
Ada W. Dolph, Seyfarth Shaw LLP
John R. Harney, O'Donoghue & O'Donoghue LLP
Dane L. Steffenson, U.S. Dept. of Labor
ERISA Crimes (AD)
• Section 411, 29 U.S.C. § 1111: Persons Prohibited
From Holding Certain Positions
• Conviction or imprisonment for certain offenses
precludes a person from serving as a fiduciary, a
consultant, or in any capacity that has decisionmaking authority or custody or control over any plan
monies or assets for a time period “during or for the
period of thirteen years after such conviction or after
the end of such imprisonment,” with certain
exceptions.
• Penalty: Intentional violations can result in a fine “not
more than $10,000” or imprisonment for “not more
than five years,” or both.
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ERISA Crimes (AD)
• Section 511, 29 U.S.C. § 1141: Coercive Interference
• Unlawful for any person “through the use of fraud,
force, violence, or threat of the use of force or
violence, to restrain, coerce, intimidate, or attempt to
restrain, coerce, or intimidate any participant or
beneficiary for the purpose of interfering with or
preventing the exercise of any right to which he is or
may become entitled under the plan.”
• Penalty: $100,000 fine or imprisoned for not more
than 10 years, or both.
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ERISA Crimes (AD)
• PPACA added ERISA Section 519, 29 U.S.C. § 1149
• Prohibits false statements or representations in the sale or
marketing of employee benefits by multi employer welfare
arrangements, including regarding:
• (1) the financial condition or solvency of such plan or arrangement;
• (2) the benefits provided by such plan or arrangement;
• (3) the regulatory status of such plan or other arrangement under any
Federal or State law governing collective bargaining, labor
management relations, or intern union affairs; or
• (4) exemption from state regulatory authority.
• Penalty found in 29 U.S.C. § 1131: imprisonment of
“not more than 10 years” or fined under title 18, or both.
• See also 18 U.S.C. Section 1027: False statements/concealment in
ERISA documents
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HIPAA Crimes (DS)
• 18 U.S.C. Section 669 - Theft or Embezzlement In
Connection With Health Care
• 18 U.S.C. Section 1035 - False Statements Relating To
Health Care Matters
• 18 U.S.C. Section 1347 - Health Care Fraud
• 18 U.S.C. Section 1518 - Obstruction Of Criminal
Investigations Of Health Care Offenses
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HIPAA Title 18 Amendments (DS)
• 18 U.S.C. Section 1345 - Injunctive Relief (expanded to
enjoin commission of a “Health Care Offense”)
• 18 U.S.C. Section 982 (a)(7) - Criminal Forfeiture
(amended to allow forfeiture without proof of money
laundering)
• 18 U.S.C. Section 1956(b)(7) - Money Laundering
amended to include “Health Care Offense” as specified
unlawful act “SUA”
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LMRA Crimes (JH)
• 29 U.S.C. § 186, Restrictions on Payments to Employee
Representatives
• Section 302 prohibits employers from paying, lending, or
delivering “any money or other thing of value” to a union that
represents or seeks to represent the employer’s employees and
likewise prohibits unions from demanding or accepting these
things.
• Exceptions are made under 302(c) for payments to a trust for the
sole and exclusive benefit of the employees of the employer
pension, health and other benefits provided there is a a written
agreement, the trust is administered by a board of made up of an
equal number labor and employer trustees, deadlocks resolved
through arbitration and an annual audit. 29 U.S.C. 186(c).
• Penalty: generally – felony,a fine of not more than $15,000, or
imprisoned for not more than five years, or both, depending on
monetary amount involved in violation.
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General Criminal Statutes (JH)
• Sections 287, 371, 664, 666, 1001, 1027, 1341, 1343,
or 1954 of Title 18 may apply to conduct relating to an
ERISA plan.
• Section 287: False claims upon or against U.S.
• Section 371: Conspiracy to commit an offense or defraud U.S.
• Sections 664, 666: Theft or embezzlement from employee benefit
plan or generally
• Section 1011: Theft or bribery concerning programs receiving
federal funds
• Section 1027: False statements/concealment in ERISA
documents
• Sections 1341, 1343: Mail fraud
• Section 1954: Solicitation to influence employee benefit plan
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2012 F.Y. Criminal Enforcement
•
•
•
•
329 New Criminal Cases Opened
230 Cases Referred for Criminal Prosecution
117 Indictments Filed
74 Criminal Convictions
• Some cases involve less than $10,000
• Most Commonly Prosecuted Statutes
• Types of Sentences
• Agency Collaboration
Discussion: Criminal Pitfalls for the
Unwary or Unwitting (AD)
• Tom and Daisy Buchanan operate Eckelstein Optical
(“EO”), a nationwide eyeglass conglomerate with
corporate offices in West Egg. EO has over 1,000
employees nationwide. EO sponsors a pension fund
and a health fund for its employees. The pension
fund is administered by the Board of Directors of EO
sitting as the Benefits Committee with the day-to-day
administration performed by Jay Gatsby who was
recommended for the job by the Fund’s investment
consultant, Meyer Wolfsheim, and hired without a
background check.
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Discussion: Criminal Pitfalls for the
Unwary or Unwitting (DS/JH)
• For several years, Gatsby took contributions due for the
pension fund and funneled them to Wolfsheim who used
them for personal financial gain and to fix sporting events,
most notably the 2019 World Series between the Chicago
Cubs and the Boston Red Sox. Wolfsheim often kicked
back money to Gatsby or gave him investment advice for
moving pension money his way. Gatsby submitted Form
5500s with false financial information to the DOL under
Tom’s signature.
• Gatsby also promoted “Owl Eyes Health Plan- The Plan
that Gives a Hoot,” a MEWA operated by Wolfsheim, at
company meetings and provided false financial information
regarding its financial health and ability to process claims
to EO’s executives and employees. He created minutes of
nonexistent meetings of the Benefits Committee that
ratified Gatsby’s financial dealings with Wolfsheim.
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Discussion: Criminal Pitfalls for the
Unwary or Unwitting (AD)
• A few years back, Tom began an affair with Myrtle
Wilson. Tom instructed Gatsby to add Myrtle and her
husband, George, to the company health and pension
plans. Gatsby had his assistant, Jordan Baker,
complete the paperwork and put Myrtle and George
on a phony payroll ledger and handle any issues with
regards to their health and pension coverage.
Although Myrtle and George had no connection with
EO, they received health benefits and free prescription
coverage as well as past service pension credit for
time worked in George’s garage.
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Discussion: Criminal Pitfalls for the
Unwary or Unwitting (AD)
• George became suspicious when he noticed that
Myrtle asked Gatsby about increasing life insurance
coverage at the annual company benefits fair. When
George went to Tom about why his wife would be
asking for increased life insurance on his life, Tom told
him that Gatsby had been “making eyes” at Myrtle for
some time. In a jealous rage, George immediately
telephoned the local office of the Employee Benefits
Security Administration and told them how Myrtle was
receiving health and pension benefits without holding
a job at EO.
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Discussion: Criminal Pitfalls for the
Unwary or Unwitting (JH)
• A few days later, Nick Carraway, EO’s in-house counsel,
received a letter from EBSA inquiring about how EO’s
health and pension plans were covering Myrtle Wilson.
Carraway immediately began an investigation into Gatsby’s
past. Using a private investigator, Carraway learned that
Gatsby had been convicted of attempted murder of a
HIPAA privacy officer who refused to divulge PHI to him
when he was an administrator of a small welfare fund in
Illconsin, although he later received a pardon. Carraway
also discovered that Gatsby had been a member of the
Walker Crew organized crime syndicate who used extortion
and bribery in a turf battle with the Wurf-Shanker syndicate.
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Discussion: Criminal Pitfalls for the
Unwary or Unwitting (DS)
• During his investigation, Carraway interviewed Jordan
Baker. Reluctant to tell Carraway anything about her
dealings with the Wilsons, Baker asked Carraway if
anything she told him was subject to the attorneyclient privilege.
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Discussion: Criminal Pitfalls for the
Unwary or Unwitting
• Questions?
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