The U.S. Department of Labor has sued an investment advisor in connection with allegations that the firm invested retirement plan assets in a hedge fund while getting undisclosed compensation from the hedge fund.
The department has filed a suit in the U.S. District Court for the Northern District of California against Zenith Capital L.L.C., Santa Rosa, Calif.
The department alleges that Zenith and its executives “invested the assets of 13 retirement plan clients in the hedge fund Global Money Management L.P., while receiving undisclosed incentive fees from the hedge fund’s sponsor and manager,” department officials say.
The U.S. Securities and Exchange Commission took control of Global Money Management, San Diego, in March 2004.
The hedge fund told investors it had more than $60 million in assets, but the SEC found only $27,000 in fund accounts, according to a complaint filed by the SEC in 2004.
The SEC and receiver later located and distributed about $30 million in fund assets.
The Labor Department suit alleges that Zenith Capital and 3 top executives violated their fiduciary obligations under the Employee Retirement Income Security Act by receiving undisclosed incentive fees from LF Global Investments L.L.C., the manager of Global Money Management, while investing the assets of 13 ERISA plans in the Global Money Management fund.
“In addition to paying Zenith incentive fees not disclosed to the 13 ERISA plan clients, LF Global held an ownership interest in Zenith,” officials allege.
The Labor Department is seeking a court order requiring the defendants to restore all losses owed to the plans, requiring them to undo any transactions prohibited by law and permanently barring them from serving in a fiduciary or service provider capacity to any employee benefit plan governed by ERISA.
Zenith Capital could not immediately be reached for comment.