MARSHALL Ã¯Â¿Â½ After turning over nearly $400,000 to buy what they thought was an ERISA employee welfare benefit plan, two Virginia doctors believe they were the victims of an elaborate nationwide theft ring and are suing to get their money back.
The doctors allege the insurance plans have conned at least 500 people out of more than $300 million.
Plaintiffs Michael Goldberg, M.D.; Edward Parelhoff, M.D.; and Eye Consultants of Northern Virginia PC filed a lawsuit against 12 insurance companies and individuals on June 22 in the Marshall Division of the Eastern District of Texas.
The defendants named in the suit are Glenn Arons, The Millennium Multiple Employer Welfare Benefit Plan, Millennium Marketing Group LLC, Innovus Financial Solutions Inc., Norman H. Bevan, Jonathan Cocks, Scott Ridge, Republic Bank and Trust, Secureplan Administrators LLC, Milliman Inc., American General Life Insurance Company and The Guardian Life Insurance Company of America.
According to the lawsuit, the "defendants have operated, and continue to operate, an ongoing enterprise which has existed for over six years and they operate the enterprise by a continuous, systematic pattern of racketeering activity which has defrauded over five hundred people nationwide by mail and wire fraud and the fraud perpetrated against Plaintiffs and other Millennium Plan participantsÃ¯Â¿Â½"
The plaintiffs allege that the defendants created a RICO enterprise and represented it as an ERISA plan that qualified as a tax deduction. They allege that the plan was used to help sell life insurance policies that generate "exorbitant commissions" and have made millions of dollars.
The Employee Retirement Income Security Act of 1974 (ERISA) is an federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans.
The RICO enterprise, The Millennium Plan, is being sold as a "tax-free investment retirement vehicle with the added benefit of free insurance."
"These defendants formed a purported 'employer welfare benefit plan' to use as a RICO enterprise, and individually and through their agents represented to their victims that it was an ERISA plan and that it qualified as a '10 or more employer plan' Ã¯Â¿Â½ which makes contributions to a bona fide plan tax deductible," the complaint states.
"In fact, it is not an ERISA plan and it does not qualify under (regulations). The plan was devised solely to facilitate the sale of life insurance policies which would generate exorbitant commissions. Defendants have made millions of dollars with this arrangement and it is ongoing."
The plaintiffs state that in 2001, insurance salesmen Norman Bevan and Scott Ridge hired attorney Kathy Barrow to target small business owners by drafting legal documents to make the insurance plan appear as if it complied with Internal Revenue Service regulations.
An employer can deduct larger contributions to a bona-fide "10 or more employer plan" than can be deducted from some other types of plans.
But there are limitations to the bona fide plans that make it impossible for insurance salesmen to make "big" money, the suit states.
"But the fact that there exists any kind of insurance premium which is tax deductible made this provision a prime candidate for swindlers like Bevan and Ridge because the existence of a bona fide plan which can be funded by insurance makes it much easier to concoct a sham plan using insurance which, to a layman, looks like the real thing."
Finding a way to make the expense of their product or service tax deductible is the "Everest of salesmen," the suit states.
"This is narcotic to corrupt insurance agents. They can use a single arrangement to defraud as many people out of as much money as their persuasive skills allow."
According to the Millennium plan, participants will contribute for their employees and then the employees will be entitled to life benefits and a death benefit. However, no one can participate in the plan unless they first buy an insurance policy from Guardian.
The doctors allege the documents do not disclose that the contributions are used to pay for insurance premiums and that "at least 90 percent, and often 100 percent" of the first few years of contributions are used to pay the salesmen's commissions.
Texas resident Jonathon Cooks, an accountant and named plan committee chairman, is accused of perpetrating the myth that the plan is a viable plan that is tax deductible.
The plaintiffs, like other participants, allege that they did not discover the scam until after they had invested their money for two to five years as expected and then the next year received a call from an agent telling them "if they don't keep paying they will lose all their money and if they thought otherwise they must have misunderstood."
The defendants are accused of violating mail and wire fraud statutes, breach of fiduciary duty, unjust enrichment, violating the Texas Insurance Code Deceptive Trade Practices Act, fraud, negligence, fraudulent concealment and civil conspiracy.
Court documents state that the Millennium Plan is currently under an IRS fraud audit for promoting an abusive tax shelter.
Dallas attorneys Anthony L. Vitullo and Laura E. Richards of the law firm Fee, Smith, Sharp and Vitullo LLP; Waco attorneys John L. Malesovas and David H. Martin of the law firm Malesovas and Martin; and Dallas attorney Collen Clark of The Clark Firm are representing the plaintiffs.
Jury trial is requested.
U.S. District Judge T. John Ward will preside over the litigation.
Case No 2:09-cv-199-TJW