Federal pension overseers, joining forces to stop what they say is widespread fiduciary misconduct by Revstone Industries LLC Chairman George Hofmeister, are winning some crucial victories. But they know they have more battles ahead.
For now, officials at the Department of Labor are hoping to persuade U.S. District Judge Karen Caldwell of the Eastern District of Kentucky to bar Mr. Hofmeister and his investment adviser Bernard Tew from ever serving as pension fiduciaries. Ms. Caldwell refrained from making a decision at a July 19 hearing, although a final order is expected within a matter of weeks.
Next up at bat is the Pension Benefit Guaranty Corp., which has positioned itself as an unsecured creditor as Revstone goes through Chapter 11 bankruptcy proceedings.
While it is not unusual for officials at the Labor Department and the PBGC to collaborate when they suspect defined benefit assets are being misused, “what is unique is the size and high-profile nature” of the companies involved, said a PBGC official who declined to be identified. “The big thing right now is they're trying to affect the sales of various operating units to various buyers. There are a lot of moving pieces here.”
That's putting it mildly. Southfield, Mich.-based Revstone, with plants and offices throughout North America, has been under civil and criminal investigation by the Labor Department's Employee Benefits Security Administration for alleged fraud and financial mismanagement at several subsidiaries since 2009 in what EBSA officials say is a pattern of “reckless behavior” that has cost the pension funds $39 million. In one court document, DOL officials claim that Messrs. “Hofmeister and Tew's disloyal and self-serving behavior is the epitome of what Congress sought to avoid in enacting ERISA.”
In a 2012 news release, Revstone acknowledged reporting to the EBSA deficient transactions that put some assets at risk involving less than 10% of plan assets, and said the plans' investment strategy “has been executed in the best interests of both the plan and its participants.” Both men declined to comment, and calls to their attorneys were not returned.