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Investment did not survive “Tiger’s Eye”

It’s clear Bernard Madoff was not the only “investment advisor” to rely on an old-fashioned Ponzi scheme to offer great returns.

In a case closer to home, a small family-owned tractor sales company in Purvellville lost a hefty chunk of its 401(k) profit-sharing plan when it invested in U.S. Capital Funding, which the 4th U.S. Circuit Court of Appeals said was “in reality, a Ponzi scheme.”

The appellate court’s unpublished opinion in Browning v. Tiger’s Eye Benefits Consulting is worth a look for the panel’s discussion of the statute of limitations for breach of fiduciary duty claims under ERISA’s section 413.

Congress amended section 413 in 1987 to distinguish between “actual knowledge” and “constructive knowledge” of an alleged breach. Since then, the circuit courts’ definitions of “actual knowledge” have diverged somewhat, wrote Maryland U.S. District Judge Richard D. Bennett, sitting by designation.

Bennett surveyed those circuit results, from two circuits’ “narrow interpretation of actual knowledge” to the requirement in four other circuits that a plaintiff only have a knowledge of the facts that constitute a violation, not that those facts make out a legal claim.

The 4th Circuit has yet to precisely define “actual knowledge” of breach, Bennett wrote. It could duck the question again because it was clear that the Browning plan trustees knew what was going on when they learned in 2002 that a receiver had been appointed for U.S. Capital Funding.

Because the transaction at issue involved purchase of a single promissory note, and the defendant’s alleged breach, loss of the entire $555,000, was “quite egregious,” the Browning trustees’ March 18, 2005 ERISA suit was time-barred, the 4th Circuit panel concluded. The court upheld summary judgment for the defendants.
By Deborah Elkins

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