Chicago Transit Authority Joins Tribal Bond Fraud Lawsuit

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

The Chicago Transit Authority joined a lawsuit claiming that employee benefit plans and other investors lost millions of dollars in a fraudulent scheme involving worthless bonds issued by a Sioux tribe ( Michelin Ret. Plan v. Dilworth Paxson, LLP , 2017 BL 199047, D.S.C., No. 6:16-cv-03604-HMH-JDA, 6/12/17 ).

A federal judge on June 12 allowed the retiree health trust for the CTA—the agency in charge of the country’s second-largest public transportation system—to join a lawsuit first filed by French tiremaker Michelin’s U.S. retirement plan.

The lawsuit claims that the Michelin plan’s advisers invested more than $8 million in bonds issued by the Wakpamni Lake Community Corp., a tribally chartered corporation connected to the Oglala Sioux Tribe in South Dakota. These bonds, which the CTA is also alleged to have invested in, purported to support tribal community improvement projects but actually established a fraudulent slush fund for defendant Jason Galanis and his alleged co-conspirators, the lawsuit alleges.

Michelin said in its complaint that at least nine other investors—including an unnamed pension fund—have been similarly victimized by the scheme. Multiple lawsuits have been filed challenging the scheme, including a criminal case in which Jason Galanis pleaded guilty and agreed to forfeit more than $43 million and potentially face a decadeslong prison sentence. In 2015, the Securities and Exchange Commission filed a civil lawsuit based on the alleged scheme.

In allowing the CTA to intervene in this case, Senior Judge Henry M. Herlong Jr. of the U.S. District Court for the District of South Carolina disagreed with a magistrate judge, who had recommended denying the CTA’s motion to intervene and putting the case on hold while the other lawsuits proceeded.

Although Herlong allowed the CTA to join this lawsuit to “conserve judicial resources,” he nevertheless agreed that the case should be put on hold. Herlong said that the other pending lawsuits could resolve or substantially affect this dispute, making it appropriate to wait for resolution in those cases.

Herlong ordered the parties to update him on the status of the other cases on Sept. 30.

Haynsworth Sinkler Boyd represents Michelin. Burke Warren MacKay & Serritella PC and Kenison & Dudley represent the CTA.

The defendants are variously represented by Lewis Babcock LLP, Boies Schiller & Flexner LLP, Griffith Sharp & Liipfert, Jenner & Block, Roe Cassidy Coates & Price, McNair Law Firm, Maslon LLP, Trachtenberg Rodes & Friedberg LLP, Glenn Haigler McClain & Stathakis, Beattie B. Ashmore Law Office, Spertus Landes & Umhofer LLP, and Carter Smith Merriam Rogers & Traxler.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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