Operate the Konocti Harbor Resort and Spa on Clear Lake
in Kelseyville, California
|WASHINGTON, Nov. 22, 2004 - The U. S. Department of Labor sued current
and former trustees, the plan administrator, and Local 38 of the United
Association of Plumbers, Pipefitters and Journeymen for diverting more
than $36 million in assets of five employee benefit plans to renovate and
operate the Konocti Harbor Resort and Spa facilities on Clear Lake in Kelseyville,
The retirement, health, scholarship, apprenticeship, and vacation and holiday funds cover more than 2,000 participants employed throughout northern California. According to the suit, Local 38 controls a non-ERISA "convalescent trust fund" that owns and operates the Konocti resort. Over time, Mazzola and Sullivan allegedly diverted approximately one-third of all pension assets- -more than $36 million--to the convalescent fund. The trustees asserted they were unaware of the diversion even though it was reported on financial statements as a "receivable." Some or all of the diverted assets were used to build and improve Konocti's 5000-seat outdoor amphitheatre, 1000-seat concert hall, and other infrastructure.
The Labor Department suit alleges that the current and former trustees and the administrator maintained inadequate financial controls, violated plan documents, and imprudently spent millions to build and maintain facilities at Konocti despite the resort's continuing financial losses. According to the suit, the trustees did not require loan agreements or obtain a security interest in the resort. Local 38 also profited from a $6 million loan it made to the convalescent fund to prevent a bank foreclosure that would have forced the sale of the Konocti property in 2000.
In addition to an accounting of all plan assets, the suit seeks to restore all losses to the plans, correct transactions prohibited by law, give the plans a security interest in the convalescent fund and Konocti and return any illegal profits paid to the defendants. The suit also asks the court to remove the plan officials as fiduciaries and to permanently bar them from service to ERISA plans in the future.
The case was investigated by the San Francisco regional office of the Employee Benefits Security Administration (EBSA). Employers and workers can contact a regional EBSA office at its toll free number, 1-866-444-3272, for help with any problems relating to private-sector pension and health plans.
U.S. Department of Labor
|Also See:||Union Pension Fund Trustees Agree to Pay $11 million to Settle a Federal Lawsuit Alleging the 1000 room Westin Diplomat Resort Was Ill-conceived; Projected Cost of $400 million Ballooned to $800 million / Aug 2004|
|Labor Department Suing Plumbers and Pipefitters National Pension Fund Trustees for Failure to Prudently Manage Investment in Westin Diplomat Resort & Spa; Opened 100% Over its Original Budget of $400 million / September 2002|