Massive ERISA Plan Investigation Ongoing in Detroit

Detroit, MIA complicated investigation into the activities of the City of Detroit's two public pension plans will involve the close scrutiny of as many as a million pages of records related to about 150 investments that the US Securities and Exchange Commission (SEC) is looking into. Any ERISA plan is required to invest plan assets with prudence, and with the best interests of plan investors in mind.

According to the February 17 issue of the Detroit Free Press (Free Press), there remains an ongoing criminal investigation of the two funds based on reports, carried in various stories previously published by the Free Press, that the two funds had lost approximately $480 million in high-risk investments since 2008.

Such revelations never come as welcome news to employee stock plan investors.

Under ERISA investment rules, fiduciaries of employee pension plans are mandated to invest prudently without exposing the plans to undue risk. However, according to various Free Press reports, the funds had been exposed to various risk-laden investments that allegedly incurred losses exceeding $270 million since 2008. The foregoing investments were alleged to have been orchestrated by one individual.

It was also reported in the employee savings plan story that pension trustees were charged with few ethical or financial disclosure rules. Trustees were permitted to travel at length with virtually zero restriction. Trustees of the funds were also allowed to accept gifts from money managers, law firms, investments advisors and other persons and entities seeking business. To that end, the acceptance of trips, expensive dinners and tickets for concerts and sporting events are alleged to have put trustees in a conflict where they may not have been acting with the best interests of plan participants at heart, and may have been influenced into making poor ERISA investment decisions on behalf of plan participants.

To that end, various deals involving private companies, hedge funds and collateralized loan or debt obligations have come under SEC scrutiny, according to the Free Press. The SEC signaled an expansion of its investigation into the ERISA benefits plans when it requested documents pertaining to anywhere from 150 to 170 investments totaling about a million pages.

Peter Henning, a law professor with Wayne State University, told the Free Press that "it looks like the SEC's appetite has been whetted. They won't ask for that many documents...unless they think there is something there."

The ERISA plan investigation is said to also involve the Federal Bureau of Investigation (FBI) and the US Department of Justice.