Apr 12, 2008 1:32 pm US/Central
Suit: Investment Firm Spent Pensions On Strip Club
U.S. Department Of Labor Claims AA Capital Partners Spent Pension Funds To Benefit Selves, Charged Exorbitant Fees
CHICAGO (STNG) ―
A lawsuit by the U.S. Department of Labor claims that a Chicago-based investment firm caused more than $25 million in losses for five pension funds by using the money for, among other things, the operation of a strip club.
The department on Friday filed the federal lawsuit against AA Capital Partners Inc. and its executives for allegedly improperly causing more than $25 million in losses for the five Michigan pension funds. The firm is accused of misusing plan assets to benefit themselves and by charging the plans excessive investment management fees.
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 managed by firm co-owner and president John Orecchio, the department said.
Additionally, the defendants allegedly caused the plans to pay unauthorized fees to AA Capital Partners.
Orrechio, along with chief financial officer Mary Elizabeth Stevens and affiliate AA Capital Liquidity Management LLC, are accused of violating the Employee Retirement Income Security Act by misusing plan assets and charging the plans excessive fees on investments, according the department.
AA Capital Partners is a registered investment advisory firm to employee benefit plans, including Employee Retirement Income Security Act-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, the release 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 No. 43 Pension Fund, the release said.
As of April 30, 2006, the latest data available, the pension plans had total assets of about $3.1 billion, the release said.
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 the Employee Retirement Income Security Act in the future, the release said.
"This case involves gross abuse of the trust that workers and their families placed in the management of these pension funds," said Secretary of Labor Elaine L. Chao. "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."
The Chicago Regional Office of the Labor Department's Employee Benefits Security Administration investigated the case.
(Source: Sun-Times News Group Wire © Chicago Sun-Times 2009. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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