Michelin Claims Tribal Bond Fraud Pilfered Retirement Funds

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

Nov. 14 — A new lawsuit by French tiremaker Michelin’s U.S. retirement plan claims the plan was bilked out of more than $8 million by a fraudulent scheme involving worthless bonds issued by a Sioux tribe ( Michelin Retirement Plan v. Dilworth Paxson LLP , D.S.C., No. 6:16-cv-03604-HMH, complaint filed 11/10/16 ).

The 11-count lawsuit follows federal enforcement actions relating to bonds issued by the Wakpamni Lake Community Corp., a tribally chartered corporation connected to the Oglala Sioux Tribe in South Dakota. The lawsuit claims that the Michelin plan’s advisers invested more than $8 million in Wakpamni Lake Bonds, which purported to support tribal community improvement projects but allegedly actually established a fraudulent slush fund for defendant Jason Galanis and his alleged co-conspirators.

The complaint calls the alleged scheme an “unconscionable abuse of the goodwill associated with what is known as ‘socially responsible investing.’”

Galanis, who pleaded guilty to securities fraud charges in an unrelated case in July, is currently facing criminal charges in the Wakpamni scheme. Galanis and his associates allegedly convinced the Wakpamni corporation to issue more than $63 million in bonds that were then forced on “unsuspecting” investors such as the Michelin plan through a “massive fraudulent scheme” that federal prosecutors say allowed the defendants to pay for personal expenses, homes, cars, travel and jewelry.

The Michelin plan’s lawsuit claims that investment adviser Hughes Capital Management LLC, which was effectively taken over by Galanis and his associates in connection with the alleged scheme, “raided” the plan of more than $8 million to purchase a Wakpamni bond without proper authorization. The Michelin plan later terminated its relationship with Hughes and instructed it to dispose of the bond, which couldn’t be done because of the bond’s illiquidity, according to the lawsuit.

At least nine other investors—including an unnamed pension fund—have been similarly victimized by the alleged scheme, the lawsuit claims.

The lawsuit names 23 separate defendants, including the Wakpamni corporation and its advisers, U.S. Bank N.A. and law firms Dilworth Paxson LLP and Greenberg Traurig LLP. The defendants are variously accused civil conspiracy, negligence, securities fraud and violations of the Employee Retirement Income Security Act and the Racketeer Influenced and Corrupt Organizations Act.

The lawsuit was filed Nov. 10 in the U.S. District Court for the District of South Carolina. Haynsworth Sinkler Boyd represents the Michelin plan.

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 © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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