Investment Firm CEO Liable for Retirement Plan’s Penny Stock

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 president of a defunct investment firm is liable for investing the firm’s retirement plan in penny stock that he’d personally invested more than $500,000 in ( Hugler v. Byrnes , 2017 BL 98669, N.D.N.Y., No. 1:15-cv-00093-FJS-DJS, 3/28/17 ).

Daniel M. Byrnes, the former president and chief executive officer of Fort Orange Capital Management, was sued by the Department of Labor in 2015 over his management of the firm’s profit-sharing plan. Byrnes sank 95 percent of the plan’s assets—$220,000—into the stock of Canadian mining venture Sarissa Inc., which was trading at $.02 per share, according to the DOL. That $220,000 investment ultimately dwindled to less than $9,000, the DOL alleged.

A federal judge March 28 held Byrnes liable for breaching his fiduciary duties of loyalty, prudence and diversification under the Employee Retirement Income Security Act. The “overwhelming circumstantial evidence” suggested that Byrnes made the investment not to benefit the profit-sharing plan, but to benefit Sarissa—and thus himself as a Sarissa investor, the judge said.

Although the judge ruled against Byrnes on the question of liability, he ordered the parties to submit additional information about the damages Byrnes would be required to pay. The DOL claimed the plan would have been better off by nearly $315,000 had it been run prudently, but the judge said he needed more information to determine the proper amount of damages.

Finally, the judge granted the DOL’s request to remove Byrnes as the plan’s trustee and permanently bar him from serving as an ERISA fiduciary in the future. This was warranted, the judge said, because Byrnes had mismanaged the plan for a decade and because he was currently employed as the president of Sarissa—making him “unable to evaluate the Plan’s continued investment in Sarissa properly.”

Sarissa’s stock has traded at or below $.01 for the past year, according to data on the Bloomberg Terminal.

Senior Judge Frederick J. Scullin Jr. of the U.S. District Court for the Northern District of New York wrote the decision.

Both Byrnes and the DOL represented themselves.

To contact the reporter on this story: Jacklyn Wille in Washington at

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

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

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