"A Trustees Worst Nightmare" -

How to Protect Yourself from the Same True Horror Story

Author's Name Withheld by Request, Reprinted With Permission

I take my job as a trustee very seriously. I know we are responsible for all of the money the trust fund holds.

Not some of the money, all of the money.

I made sure I was doing everything to fulfill my duties, and I thought we were doing everything we could to stay law-suit free. BUT, why did this nightmare begin and where will it end?

I better take you back to the beginning.

We were approached by a money manager that wanted a piece of our fund. They all seem to want a piece of your fund and they are always there with their hands out waiting for it. The money manager had the usual binders of results, benchmark statistics and references that they all bring to the table.

The results looked good, the references checked out, and the money manager made it past the first round of questions.

Now the real deal began. We had our lawyers, accountants and consultants check out the managers and do a report on the possibility of investing with this manager.

For the most part everything checked out and we were feeling pretty comfortable with the money manager. The attorney still wasn't fully satisfied due to a few loose ends, so we sent out another independent consultant to check them out again.

It all looked good, the lawyers got the contracts in line and the money was transferred over to the money manager.

Things were going along fine.

The Bad News

The Money Manager was being investigated by the Department of Labor for falsifying records, co-mingling money and flat out stealing money from the fund accounts.

More Bad News

All assets under management with the firm were frozen until the case could be reviewed by the Department of Labor and other federal regulators.

From Bad To Worse

There was a really good chance that we would not be able to recover the approximately $15,000,000 we invested with the fund.
How were our participants going to handle the news that the $15,000,000 was gone and not recoverable?

Not too well!

We were informed that the Department of Labor would also be investigating our Trust to see how we made the decisions to invest with this money manager. There were rumors that some of our trustees were flown to exotic locations for hunting and fishing trips. I had never heard of anything like that going on and I didn't know of any trustees that did that. I thought, oh well, rumors are rumors.

The attorneys told us to cooperate with the Department of Labor.

They also told us that we may be sued for fiduciary liability because we chose this money manager.

The Horrific Bottom Line

They explained that our fiduciary liability limit for our Trust Funds was $5,000,000. That included coverage for defense. That meant whatever it cost us to defend ourselves would come off the top of the $5,000,000. We were probably going to be sued for the entire loss of the funds and our insurance policy wasn't going to have enough money to cover the loss.

Who is responsible then?

The trustees are personally responsible for the loss if we don't have enough coverage. Now that's scary.

Now it looks like we are going to be sued, we probably don't have enough coverage and I have to go home and explain it to my wife.

Check out your policy today and make sure you have enough coverage to cover anything that can happen to you.

For more free information on this and other Union Trustee Fiduciary Liability topics, submit your email below or call toll free:

1-866-810-3030 or email shaunirwin@insuretrustees.com

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-The report provided here by the Union Trustee Insurance Resource Center is for informational purposes only. No coverage is bound or implied without direct contact with a Union Trustee Resource Insurance Representatives.

All policy features, exclusions and related topics are subject to specific underwriting guidelines.