In Chaaban v. Criscito, No. 11-2096 (3rd Cir. 2012) (Non Precedential Opinion), the plaintiffs, the current Trustees (the “Trustees”) of the Diagnostics & Clinical Cardiology, P.A. Profit Sharing Plan (the “Plan”), filed suit alleging that the defendant, Dr. Mario Criscito (“Criscito”), the trustee of the Plan until 2007, violated the fiduciary duties he owed to the Plan participants under ERISA. The district court granted the Trustees’ motion for summary judgment and awarded them $4,117,464.65. Criscito appealed.
The suit relates to a sale of stock by Criscito in January of 2000, when he was the Plan’s trustee. At that time, the Plan had two accounts holding plan assets. One account was the “Morgan Stanley Account”, a single account with commingled assets, in which each Plan participant had a share. Criscito sold all of the stock in the Morgan Stanley Account near the peak of the “tech bubble” in January of 2000. The assets in this Account were worth $12,952,936.42 at the end of 1999, but Criscito reported to the third-party administrator, American Pension Corporation (“APC”), that the balance of the account was $4,017,942.57. This report greatly understated the value of each participant’s portion of the Morgan Stanley Account. Later, the Morgan Stanley Account was divided up, and each participant’s interest therein was transferred to an individual account for that participant. Due to Criscito’s report, each participant received smaller transfers into their individual accounts than would have otherwise been the case.
Criscito proceeded to use the balance of the Morgan Stanley Account-that is, the approximately $8.9 million in amounts not transferred to the individual accounts- for personal transactions, including making distributions from the Plan to himself. Criscito succeeded in concealing his actions. His activities were not discovered until he was removed as the Plan’s trustee in 2007.
In analyzing the case, the Third Circuit Court of Appeals (the “Court”) ruled that the suit was timely filed. Since the case involves fraud or concealment- Criscito hid his nefarious actions until discovery in 2007-ERISA’s six year statute of limitations applies (the statute is found in 29 U.S.C. § 1113), and the statute begins to run only when the fraud or concealment is discovered. The suit was filed well within 6 years of the discovery. Next, the Court reviewed the Trustees’ claim for damages against Criscito under ERISA (brought under 29 U.S.C. § 1132(a)(2) and 29 U.S.C. § 1109(a)). The Court said that it is clear that, as the Plan’s trustee, Criscito breached his ERISA-imposed duty and caused a loss to the Plan. He fraudulently reported an inaccurate account balance to APC, improperly distributed the Plan’s assets to himself, and otherwise used the assets for his personal benefit. These fraudulent actions resulted in a loss when the Plan participants received an amount smaller than their proportionate shares in the Morgan Stanley Account. Thus, the Court found that the Trustees are entitled to their summary judgment. The Court also ruled that the district court’s determination of the amount of the damages was correct. As such, the Court affirmed the district court’s ruling.