Bloomberg News

Retirement Adviser Who Touted Fiduciary Duty Under Investigation

November 15, 2011

Nov. 3 (Bloomberg) -- Matthew Hutcheson, who advises companies on their retirement plans, told Congress that managers of the $3.2 trillion in U.S. 401(k) plans should adhere to “the highest ideals of society.”

“The fiduciary duty is the highest duty known to the law,” Hutcheson, 41, said in testimony before the House Ways and Means Committee in October 2009. As an independent fiduciary, Hutcheson helps manage company retirement plans, picking investments and monitoring their operations. The legal requirement of a fiduciary is to always put the best interests of the client first.

Rodney Thompson, co-owner of Thompson Audiology in Yakima, Washington, said Hutcheson fell short of his own standards. Thompson and his employees had more than $1 million invested in a 401(k) plan called the G Fiduciary Retirement Income Security Plan, and Hutcheson was the fiduciary -- the person minding the assets. The money was supposed to be transferred in June to a new plan that Hutcheson ran.

The funds never arrived and Hutcheson told him they were in an investment that he couldn’t sell immediately, Thompson said. Thompson said he pressed Hutcheson for weeks, to no avail. In August, he filed a complaint with the U.S. Department of Labor, which regulates 401(k)s. The agency is investigating Hutcheson, Labor Department spokesman Michael Shimizu said.

“This is money that our employees are counting on,” Thompson said in an interview. “He preached transparency, and he’s not being transparent at all.”

‘Robbery’

David Novak, a dentist in North Carolina, said his practice is missing $275,000 that it had in the G Fiduciary plan.

“If his lips are moving, he’s lying to you,” Novak said in an interview. “If he had a gun, it would be robbery.”

Through his attorney, Hutcheson denied any wrongdoing.

“All of the allegations are baseless,” said Dennis Charney, a lawyer in Eagle, Idaho. “We will address this in court at the right time but do not feel a newspaper is the forum to try pending and future lawsuits.”

Named for the section of the tax code that created them, 401(K)s and similar accounts are the mechanism by which 58 million U.S. workers in private industry are able to save money for retirement as companies cut back or eliminate traditional pension plans.

At large employers, the company itself is usually the fiduciary for the 401(k). Hiring an independent fiduciary is becoming more common, especially among smaller companies, as they seek to limit their liability for investments that perform poorly.

Complete Reliance

“Most companies don’t have the knowledge or experience, so it makes sense to hire someone who does this for a living,” said Kenneth Raskin, an attorney specializing in compensation and benefits at law firm King & Spalding LLP in New York. “These companies completely rely on and trust these independent fiduciaries.”

Hutcheson was visible in the industry. He testified before Congress and held trainings for fiduciaries around the country. Motivational speaker Stephen M.R. Covey, son of Stephen R. Covey, author of “The 7 Habits of Highly Effective People,” was featured to speak at one in New York, according to Hutcheson’s Website.

Covey didn’t return telephone messages.

G Fiduciary, where Hutcheson was independent fiduciary until the middle of this year, was founded by Dan Peterson, a partner at Peterson Partners, the private-equity firm in Salt Lake City that was among the first investors in JetBlue Airways Corp.

BenefitGuard

G Fiduciary was a multiple-employer plan, meaning it offered 401(k) services to various companies using the same guidelines and investments. It has since been renamed BenefitGuard Retirement Income Security Plan, according to an annual filing with the U.S. Government.

“We have been in contact with the Department of Labor to cooperate in its investigation of Matt Hutcheson’s activities,” Peterson said in an e-mail. In an interview, he said he couldn’t discuss the matter further because of the Labor Department’s investigation.

Property records show that Hutcheson lived in Orem, Utah, and Kennewick, Washington, before moving to Portland, Oregon. He was a hunter and fisherman there, taking out licenses from 1997 through 2009, according to public records.

Hutcheson bought a house in Eagle, Idaho, near Boise, in late 2009. He remodeled it, adding a swimming pool that was 46 feet (14 meters) long, according to a building permit. He added a 4,100-square-foot barn with a second-floor apartment, an office overlooking a riding arena, and a room for displaying his guns, according to a person who worked on it. The property had a heated doghouse, the person said. Charney, Hutcheson’s lawyer, said the doghouse had just a space heater.

New Gig

In Idaho, Hutcheson struck out into a new business. In November 2010, he founded a company called Green Valley Holdings LLC and bid $40 million for Tamarack Resort, a ski area near McCall, Idaho. In December 2007, Tamarack had defaulted on a $250 million loan arranged by Credit Suisse Group AG. The founders sought bankruptcy protection.

Hutcheson made his wife, Annette, a manager in Green Valley, according to a December filing with the Idaho Secretary of State’s office.

Tamarack was designed to be one of the splashiest resorts in Idaho’s history. Tennis champions Andre Agassi and Stefanie Graf planned to build a Fairmont hotel there. Luxury homes dot the golf course and the forests along the ski lifts.

Avenue, Fortress

Hutcheson said he had big money behind his Tamarack bid. In an e-mail dated July 27, Hutcheson told colleagues at Green Valley that Avenue Capital Group, the hedge fund led by Marc Lasry, and Fortress Investment Group LLC, both in New York, planned to put in $50 million each.

“Avenue Capital is frequently approached on an unsolicited basis by parties proposing investment opportunities,” Todd Fogarty, a spokesman for Avenue at Kekst & Co. in New York, said in an e-mail. “Such an approach was made by Mr. Hutcheson regarding Tamarack, but we did not engage substantively beyond that point.”

“Fortress has not extended financing or made an investment as asserted by Mr. Hutcheson,” Fortress spokesman Gordon Runte said in an e-mail.

Green Valley got a piece of Tamarack, paying $3 million for the mortgage note on the golf course in late 2010, according to a person familiar with the purchase. Hutcheson planned to foreclose and take possession of the property, the person said.

Bad Checks

Hutcheson started bouncing checks soon after, said Scott Turlington, an Idaho consultant who worked on Hutcheson’s plan to buy Tamarack. Two checks to Turlingon’s company, Principle Strategic Advisors, one for $45,000 in March and another for $6,000 in May, failed to clear, Turlington said.

At the same time, his 401(k) customers became impatient in their attempts to retrieve their savings.

Thompson, the audiologist, said two workers nearing retirement have been trying to get money from their 401(k) plan since October 2010. At first, Hutcheson apologized for the delay, saying he had been busy.

“Matt in the past had been kind of slow, because he has too many irons in the fire,” Thompson said.

In May, Hutcheson visited Thompson and recommended transferring money out of G Fiduciary and into another plan he ran, the National Retirement Security Plan (NRSP), which had more investment choices. After that transfer, Thompson’s workers could get their money, Hutcheson said.

“We went ahead and signed up with NRSP,” Thompson said.

Creditors started pursuing Hutcheson at about the same time. Givens Construction, the company that built the barn and remodeled Hutcheson’s house, filed a $159,943 lien on it with the recorder’s office in Ada County, Idaho, on May 24.

No Transfer

Thompson Audiology’s 401(k) money was supposed to be transferred by June 30, Thompson said. It never arrived.

“At some point, the money was taken out of G Fiduciary but wasn’t put into NRSP,” Thompson said.

In August, Hutcheson told Thompson that the money was in an illiquid investment, Thompson said. Thompson made a complaint to the Department of Labor.

In its 2010 filing with the government, G Fiduciary, by then called BenefitGuard, reported transfers from the plan of $677,201 in 2010. Later in the filing, the only entity listed as getting a transfer is “West Coast Bank Pension Liquidity Plan and Trust Attn Matthew D. Hutcheson, Trustee.”

‘Suspicious’

Turlington, the consultant, said he got a $15,000 wire transfer from an account by that name at West Coast Bank in Oregon in October 2010, for work on the resort purchase. He said he didn’t even look at the transaction details, figuring the money had come from Hutcheson, as planned.

“It wasn’t until much later that we got suspicious,” Turlington said. He has passed the information along to the Department of Labor, he said.

Hutcheson resigned as fiduciary of the NRSP in September, according to a letter to participants from Ary Rosenbaum, a New York attorney who replaced him.

“Mr. Hutcheson has been working on health-care reform with some in Washington, D.C., for over a year, and has finally acknowledged the wear and tear that has accumulated over many years of championing the cause of American workers’ retirement security,” Rosenbaum wrote on Sept. 12. “You should refrain from any negative conclusions.”

More people came looking for money. John Fitzgerald, a former employee of Hutcheson’s filed a complaint in state court in Ada County on Sept. 23, seeking $138,814 in damages for unpaid wages of $46,271.

$425,000 Loan

On Sept. 19, James Fletcher III sued Hutcheson and Green Valley Holdings LLC in Rappahannock County, Virginia, alleging that Hutcheson had failed to repay a $425,000, one-month loan made by Fletcher on March 29. Hutcheson pledged as collateral the $3.5 million mortgage on Tamarack’s golf course, the complaint said. The interest rate was 5 percent per month.

Hutcheson failed to pay the loan within 30 days, as planned, Fletcher said in his complaint, then negotiated an extension until July 5, personally guaranteeing the modified loan. He missed that deadline, too, the complaint said.

In September, Hutcheson wrote to Idaho Governor C.L. “Butch” Otter and told him that Green Valley was struggling to acquire Tamarack because bankers were skittish.

“As a nation, we are on the precipice of a currency crisis,” Hutcheson wrote in the letter.

Moreover, Valley County, where Tamarack is located, needs 1,500 new, well-paying jobs to support a resort, or Tamarack would fail again, Hutcheson wrote. To that end, Hutcheson said he was working to develop geothermal energy in the area. Cheap electricity, in turn, would attract manufacturers from California, he wrote.

“I’ve always had an interest in helping people,” Hutcheson said in an interview before questions about his fiduciary work prompted a referral to Charney, his lawyer. “I’m very interested in helping the people of Valley County.”

--With assistance from Katherine Burton and Margaret Collins in New York. Editors: Rob Urban, Larry Edelman

Companies: FIG US <Equity> 820885Z <Equity> CSGN VX <Equity>

To contact the reporters on this story: Anthony Effinger in Portland, Oregon, at aeffinger@bloomberg.net

To contact the editor responsible for this story: Rob Urban in New York at robprag@bloomberg.net.


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