As part of the Department of Labor’s (DOL) Strategic Plan for Fiscal Years 2006-2011 to enhance pension and health benefit security, DOL established the Consultant Adviser Project (CAP), a national project that focuses on the receipt of improper, undisclosed compensation by pension consultants and other investment advisers. As a consequence of an investigation conducted under CAP, the DOL brought suit against Zenith Capital, LLC, a registered investment adviser and its executives.
The lawsuit alleges that Zenith and its executives violated ERISA’s fiduciary responsibility provisions by causing the plans it managed to invest plan assets in a hedge fund while failing to disclose the fees it received from the hedge fund’s sponsor and manager. In addition to paying Zenith undisclosed incentive fees, the manager of the hedge fund was a partial owner of Zenith.
The suit also alleges a number of other fiduciary failures including the adviser’s alleged failure to perform due diligence on the fund, not acting in accordance with plan documents and investing plan assets in the fund even though the fund did not meet the stated objectives of the pension plans.
DOL is seeking the typical remedies provided in ERISA Section 409 in fiduciary breach cases: (1) requiring the defendants to restore all losses owned to the plans; (2) requiring defendants to undo any prohibited transactions; and (3) permanently barring the defendants from serving in a fiduciary or service provider capacity to any ERISA governed employee benefit plan.