U.S. Labor Department sues Bridgeport nursing home for financial malfeasance

By Kevin Zimmerman

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The U.S. Department of Labor (USDOL) is suing a Bridgeport nursing home and its chief officer, alleging that they diverted millions of dollars from the company’s retirement plan improperly to a religious corporation and to themselves.

The Bridgeport Health Care Center Inc. Retirement Plan was established to provide retirement benefits for the employees and beneficiaries of two Bridgeport nursing homes, Bridgeport Health Care Center and Bridgeport Manor. Bridgeport Health Care Center Inc. sponsors the plan; Chaim Stern, who serves as chief financial officer, chief operating officer and nursing home administrator for Bridgeport Health, is the plan’s trustee and acts solely on behalf of Bridgeport Health Care Center Inc. as plan administrator.

An investigation by the USDOL’s Employee Benefits Security Administration concluded that the defendants have been violating their fiduciary duties since at least January 2011, and have continued to do so. During that time, they allegedly diverted at least $4 million in plan assets, directly or indirectly, to Bridgeport Health, to Stern and to Em Kol Chai, a New York religious corporation that lists Stern as its president and trustee on its certificate of incorporation.

In October 2011, a promissory note worth $3.8 million made payable to the plan was executed on behalf of Em Kol Chai. The note provides for payment of minimal interest, and no collateral was offered to secure the payment. The obligation to pay the note, the amount of which has represented more than 75 percent of the retirement plan’s assets, has been extended to Sept. 30, without consideration.

“It appears some portion of this amount was transferred back to the plan,” the USDOL said in a statement. “A full accounting will be required to determine the precise extent of the diversions.”

Filed in the U.S. District Court for the District of Connecticut, the lawsuit asks the court to remove Stern as plan fiduciary and appoint an independent fiduciary; permanently enjoin Stern from serving as a fiduciary to any ERISA (Employee Retirement Income Security Act of 1974) covered plan; require the defendants to undo the prohibited transactions and restore to the plan any losses incurred as a result of their fiduciary breaches, including lost earnings and appropriate interest; require the defendants to perform an accounting of all plan transactions from Jan. 3, 2011 to the present; and permanently enjoin Stern and Bridgeport Health from future ERISA violations.

“The best interests of plan participants are paramount under federal law, and this agency will seek every remedy when retirement dollars are misdirected,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “The alleged breaches in this case are certainly serious enough to take to court, and based on our investigation, have clearly had a negative impact on plan participants.”

Stern and Bridgeport Health had no immediate comment on the action.

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