Farmers & Merchants Inks $10M Deal In Benefits Fraud Case

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 Carmen Castro-Pagan

Farmers & Merchants Trust Co. of Chambersburg will pay $10 million to settle claims that it participated in a decadelong fraud scheme involving a multiple employer welfare arrangement that misused over $35 million of its assets.

The settlement, if approved, would end a lawsuit against the bank for allegedly allowing transfers, payments, and loans that caused millions of dollars in losses to over 200 employee benefit plans and 500 participants, according to documents filed April 11 in the U.S. District Court for the Eastern District of Pennsylvania.

The amount is 57 times higher than what the Labor Department accepted in settlement of similar claims asserted against F&W as successor by merger to Community Trust Co. In 2012, F&M agreed to pay $175,000 to the plans to settle claims brought by the DOL. The settlement amount is also 10 times the amount F&M paid to acquire Community Trust and equal to one year of its current earnings. Headquartered in Pennsylvania, F&M provides banking services to customers nationwide, according to Bloomberg data.

The multimillion-dollar agreement is the latest one reached in a lawsuit against multiple entities involved in the voluntary employees’ beneficiary association trusts established by the convicted and now-disbarred attorney John Koresko.

In 2016, law firm Montgomery McCracken Walker & Rhoads LLP agreed to pay $980,000 to settle claims that it operated under a conflict of interest in litigation involving Koresko and his violations of the Employee Retirement Income Security Act. Last year, law firm Samuels Yoelin Kantor LLP reached a $28,000 deal to end claims against it.

Koresko and other parties established and operated a MEWA, and between 2002 and 2013, the parties systematically converted and misused over $35 million of its assets.

The Silverstein Firm and Wilshire Palisades Law Group PC represent the plans. Buchanan Ingersoll & Rooney PC represents Farmers & Merchants.

The case is Kalan v. Farmers & Merchs. Trust Co. of Chambersburg, E.D. Pa., No. 2:15-cv-01435-WB, motion for preliminary approval of settlement 4/11/18.

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