DOL Gets TRO Against TPA

The Department of Labor (DOL) has gone to court to protect retirement plan assets in a case of alleged embezzlement by a TPA.

The DOL says that an emergency temporary restraining order (TRO) has been issued by the U.S. District Court for the Western District of Pennsylvania against RiversEdge Advanced Retirement Solutions LLC, and owner Paul Palguta. 

According to the DOL, RiversEdge is a third-party administrator of at least 240 retirement plans that hold millions of dollars in plan assets and acts as an agent to manage and administer plan assets—at least 229 of these retirement plans are covered by the Employee Retirement Income Security Act of 1974 (ERISA).

An investigation by the department’s Employee Benefits Security Administration (EBSA) determined that RiversEdge Advanced Retirement Solutions LLC and its owner Paul Palguta violated ERISA. More specifically, that from October 2022 through January 2024, the defendants embezzled at least $5.5 million in retirement plan assets from 17 retirement plans—by transferring them from retirement plan trusts into their own corporate accounts.[1]

According to a DOL press release, EBSA also found that the defendants allegedly attempted to conceal the embezzlement when they issued fraudulent account statements to the retirement plans causing them to file false reports with the department that overstated the amount of assets in the trust accounts. When retirement funds lacked sufficient assets to process transactions, the defendants transferred plan assets from other trusts to cover the shortfall.

In acquiring the TRO, the DOL cited that “immediate and irreparable injury, loss, or damage will result to the Plans and their participants.” It went on to note that the “irreparable injury to be prevented is the harm to the Plans caused by the RiversEdge Defendants’ breach of their fiduciary duties, responsibilities, and/or obligations to the Plans, which includes misuse and misallocation of the Mismanaged Plans’ assets.” 

The temporary restraining order obtained by the DOL:

• Forbids the defendants from any further involvement with trust assets.
• Enjoins them from serving as fiduciaries or service providers to any ERISA plans.
• Forbids the defendants from withdrawing any funds from their two corporate accounts into which they had illegally transferred the plan assets, except court-ordered payment of independent fiduciary fees.
• Requires the defendants to preserve all relevant records for the purpose of transferring to an independent fiduciary appointed by the court.
• Requires the independent fiduciary to oversee an accounting of the 17 mismanaged plans.

In addition to the temporary restraining order, the DOL says it is pursuing litigation seeking a permanent injunction and order that requires the defendants to restore the missing plan assets to the retirement plans and forbids them from serving as fiduciaries to any plan in the future.

The DOL also explained that the affected plans “may have standing to participate in this proceeding presently pending, including the injunctive relief being requested. Affected plans should immediately consult with legal counsel to obtain advice and make decisions relative to your interests.”

In granting the TRO, U.S. District Judge Marilyn Horan noted “the Acting Secretary has shown a reasonable likelihood of success on the merits of the ERISA claims, irreparable harm absent this injunction, and that the balance of the harm to the parties and the public interest weigh in favor of an injunction.”

Footnote

[1] According to the TRO, the RiversEdge Defendants allegedly misappropriated and misallocated in retirement plan assets from 17 retirement plans, 14 of which were covered by ERISA (“the Mismanaged Plans”). The RiversEdge Defendants also are alleged to have transferred assets among the trust accounts for these plans and generated false records to conceal these transfers. Because of the RiversEdge’s misappropriation and misallocation of plan assets among the plans, some of these trust accounts now hold plan assets of unaffiliated ERISA-covered plans.