Judge freezes 13 accounts tied to benefit firm

Posted: July 19, 2013

A federal judge has temporarily frozen 13 bank and brokerage accounts allegedly containing assets of 126 employee welfare benefit plans administered by Bridgeport-based PennMont Benefit Services Inc.

The order by U.S. District Judge Mary A. McLaughlin followed a July 8 hearing and is part of a lawsuit brought in 2009 by the U.S. Department of Labor against PennMont, the plan trustee Penn Public Trust, the plan fiduciary John J. Koresko V, and Koresko Law Firm P.C., Koresko & Associates P.C., and other defendants.

The suit alleges violations of the Employee Retirement Income Security Act (ERISA).

An evidentiary hearing is scheduled for Aug. 12.

PennMont owner John Koresko said Wednesday that the Labor Department was "engaged in propaganda. This has been going on for 10 years. They lost their first preliminary injunction proceeding in 2009. I beat them, and I sued several members of the Labor Department for violations of the anti-propaganda laws."

In a subsequent interview, Labor Department spokeswoman Leni Fortson said, "We stand behind our news release. We issue press releases about legal actions."

Late Wednesday, Koresko filed a request for an emergency injunction.

Koresko said the trust was solvent and could pay claims as they come due. "There is $11 million of cash right now that is sitting in accounts and another $60 million minimum that's sitting in other assets," he said. "In essence, they have never proven that the arrangement is insolvent."

The judge ruled last week that the Labor Department and private litigants had "established a substantial likelihood of success" that the Koresko parties "breached their fiduciary obligations to the ERISA plans" that they administered.

"The record shows that the Koresko parties took out millions of dollars in loans against the cash value of life insurance policies owned by the trust," the court said. "It is not at all clear from the record that the trust is solvent or that beneficiaries with policies that have value reduced by the loans would be able to collect their full benefits in the event of a death."

The order noted the defendants "have a substantial likelihood of showing the Koresko parties engaged in a pattern of moving plan assets in the form of death benefit and insurance policy loan proceeds through at least 28 different bank accounts, held in the name of at least 19 different entities, at no fewer than four banks, commingled plan assets with other funds, and misappropriated funds from those commingled accounts for their own benefit."

The court said the current record shows "a substantial likelihood" that the Koresko parties "used plan assets to pay Koresko and his law firm for services to the trust and that by acting as both the fiduciary to the trust and as a service provider to the trust, who incidentally also appeared to set his own rates for his services, Koresko placed himself in the precise position of dual loyalties that ERISA prohibits."

Koresko said Wednesday, "What you are looking at is an interim ruling that's already on appeal" to the U.S. Court of Appeals for the Third Circuit in Philadelphia.

"The Department of Labor and the Internal Revenue Service have been cooperating with each other since 2002 and before to harass over 300 clients of mine," Koresko said. "They have been trying to destroy our business for over 10 years. The Labor Department has been trying to take over this trust for a decade."

The court ruled previously that ERISA applied to certain employer-level plans that participated in the trust, and that the funds held in the trust were plan assets.

Last week's interim order temporarily froze funds in 13 accounts, but not three others. The judge permitted PennMont and Penn Public Trust to pay premiums on life insurance policies out of one of the accounts.

Contact Linda Loyd at 215-854-2831 or lloyd@phillynews.com.

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