The legal fallout from the collapse of employee benefits firm 1Point Solutions has drifted in a new direction.
On June 27, just a day after a judge refused further delays in the criminal trial of 1Point founder Barry R. Stokes, financial services giant American International Group filed suit against 20 individuals who served as trustees of retirement plans allegedly looted by Stokes. The lawsuits were filed as counterclaims in cases originally brought by the retirement plans against AIG’s financial advisory unit.
Stokes was charged in October 2006 with embezzling retirement plan funds after his company dramatically collapsed in the preceding weeks. He had been a registered representative of Spelman & Co. in selling retirement plan services and investments. Spelman became part of AIG in 2005.
The former 401(k) clients of Stokes sued in 2006 and 2007 in Nashville's federal court, claiming that AIG and Spelman ought to have known that Stokes was bad news because of past misconduct that was on his record. Arguing that the financial firms were “wildly reckless in discharging their supervisory duties” under market rules and regulations, the retirement plans sought millions in damages.
Only now, after lengthy procedural delays, has AIG responded in substance to those legal complaints. The company denies it failed to oversee Stokes properly, but its counterclaims then argue that if it is to be held responsible for the losses, the people who served as trustees for the plans ought to share in the liability.
Among the individuals being sued are Frank Mastrapasqua and his son Mauro Mastrapasqua of Nashville, as trustees for the 401(k) plan of Mastrapasqua Asset Management Inc., and Lester Turner Jr., as trustee for the plan of Tuned In Broadcasting Inc., parent company of Nashville radio station WRLT-Lightning 100.
All of the trustees “failed in their ongoing duty to monitor, supervise and control the actions of Barry Stokes and 1Point, which caused the plans to suffer losses,” AIG asserts.
Representing the Wall Street conglomerate are Christopher G. Lazarini and Shepherd D. Tate from the Memphis office of Bass, Berry & Sims PLC, as well as Anthony J. McFarland and E. Steele Clayton from the Nashville office of Bass.
“We believe that AIG’s counterclaims are without merit,” says Nashville lawyer H. Naill Falls Jr. of Falls & Veach, representing the trustees. The company, he asserts, “had a clear legal duty” to supervise what Stokes was going.
“Furthermore, AIG had the legal and contractual power to audit Stokes’ books and records,” Falls says. “My clients had no such power and had no ability to obtain the information necessary to discover Stokes’ fraudulent scheme. AIG could easily have uncovered the fraud if it had complied with its legal obligations.”
James B. Bristol, an attorney specializing in benefit plans at Waller Lansden Dortch & Davis LLP who is not involved in the cases, says AIG’s counterclaims were not a tactic he had seen before in similar situations.
"I would say that it wasn't the trustees' duty to manage the plan assets, so the fact that the money is gone isn't their problem," Bristol says. He also notes that the trustees had a fiduciary responsibility, in his view, to file their lawsuits against AIG in the hope of retrieving some of the lost funds.
The criminal trial of Stokes is set to begin on Sept. 9.
On June 26, U.S. District Judge Robert L. Echols denied a defense motion to put it off due to a lawyer's scheduling conflict. The trial has been postponed four times since the arrest of Stokes, and he has been held without bail since his arrest.
Other cases of note (June 25-July 1)
United States Court of Appeals for the Sixth Circuit:
John B., et al. v. M. D. Goetz Jr., Commissioner, Tennessee Department of Finance and Administration. Opinion filed June 26. In class-action litigation over TennCare coverage for children that has dragged on for ten years, a dispute arose over whether the advocates suing the state could copy the computer hard drives of state officials to find information about TennCare's compliance with a consent decree reached earlier. District Judge William J. Haynes Jr. ruled late last year that the state had to allow the copying, with the data to remain under seal.
Calling that order “clearly erroneous as a matter of law,” the opinion by Circuit Judge John M. Rogers strikes down the data-copying authorization. In a concurring opinion, Judge R. Guy Cole Jr. agrees with Rogers’ legal rationale but also expresses frustration at TennCare’s “continual noncompliance” with the consent decree, saying its “acrimonious litigation practice has unfortunately steered this case away” from the goal of making sure children in the state have adequate medical coverage.
Michael W. Kirk of Cooper & Kirk, Washington, D.C., argued the state's case. Michele M.
Johnson of the Tennessee Justice Center in Nashville argued for the patients.
United States District Court
Samuel Torres v. Chad Youth Enhancement Center et al.; also Nicole Ford v. same. Complaints filed June 26. More trouble for the Chad facility for juvenile delinquents in Montgomery County, where two teens have died under questionable circumstances since 2005.
Now Ford, a white female who used to work at Chad, claims she was subjected to racial discrimination by black employees. And Torres, her Hispanic former boss, claims higher-ups refused to stop such discrimination. Clarksville attorney Debra A. Wall represents both plaintiffs.
Davidson County Chancery Court:
Richard Small d/b/a H&K Co. v. Fifth Third Bank N.A. Filed June 25. Small, perhaps best known locally as the builder of the unusual home known as "Small World" opposite the Chickering entrance to Percy Warner Park, claims the bank let a business partner in a real estate venture borrow millions against a line of credit he had put up, even though he did not authorize the loans.
Now, he says, the loans are in default and the bank is coming after him for payment. Plaintiff's attorneys: Steven A. Riley, Timothy L. Warnock and Howell O’Rear of Riley Warnock & Jacobson PLC.