US v. Schwimmer, 87 CR 423(SS).

Decision Date10 November 1988
Docket NumberNo. 87 CR 423(SS).,87 CR 423(SS).
Citation700 F. Supp. 104
PartiesUNITED STATES of America v. Martin SCHWIMMER and Mario Renda, Defendants.
CourtU.S. District Court — Eastern District of New York

Andrew J. Maloney, U.S. Atty. E.D.N.Y. and Edward A. McDonald, Atty.-in-Charge, Organized Crime Strike Force, E.D.N.Y. (Bruce Maffeo, Sp. Atty., Alan Friedman, Sp. Atty., of counsel), for U.S.

Robert S. Fink, New York City (Kostelantz Ritholz Tigue & Fink, New York City, Kathryn Keneally, of counsel), for defendant Schwimmer.

MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

During deliberations, questions were raised by the jury regarding the interpretation of the phrase "bona fide compensation" used in the context of 18 U.S.C. § 1954.1 The Court ruled that in order for the trustees of an employee benefit plan to determine whether compensation is bona fide, the trustees must be given full disclosure of the details of such compensation. The following embodies the Court's ruling.

Based on the questions asked by the jury,2 I find that it necessary to decide how "bona fide compensation" should be interpreted in construing § 1954.

The definition of bona fide which appears in the charge is serviceable,3 see Final Jury Charge 22 (October 25, 1988), and is taken from Black's Dictionary. See Blacks Law Dictionary 223 (4th ed. 1951). The real problem, however, is how "Bona fide" should be defined and read in the context of § 1954 and in light of that section's legislative history. That answer requires a study of the legislative history of § 1954.

Section 1954 was enacted as part of the "Welfare and Pension Plans Disclosure Amendment Act of 1962." Pub.L. 87-420, § 17(e), March 20, 1962 (emphasis added). This act was found necessary when it became evident that the abuses in administering employee benefit plans that were supposedly remedied in the 1958 Welfare and Pension Plan Disclosure Act were still occurring. See H.R.Rep. 998, 87th Cong., 2nd Sess., reprinted in 1962 U.S.Code Cong. & Admin.News 1532, 1533.

Before discussing those abuses I want to address the purpose of the 1958 Act. Section 2 of that Act states that: "it is desirable, in the interests of Employees and their beneficiaries ..., that disclosure be made with respect to the operation and administration of employee benefit plans." (Emphasis added). The section goes on to say that it is the policy of the act "to require the disclosure and reporting to participants and beneficiaries of financial and other information with respect to the plan." (Emphasis added).

In 1961, after considering the effectiveness of the 1958 Act, Congress passed the 1962 (Amendment) Act to supply, in the words of the House Report, the "enforcement teeth which are lacking in the existing law." As part of that legislation, Congress enacted § 1954. The House report stated that "the need for this provision is plain" when one considers the findings leading to the passage of the "Douglas Bill" (the 1958 Act). See 1962 U.S.Code Cong. and Admin.News at 1538. Indeed, the congressional record echoes the need for § 1954. See, e.g., 108 Cong.Rec. 1924 (1962) (remarks of Senator McNamara) ("The last important set of amendments to the 1958 Act establish criminal sanctions for violations of trust."); 108 Cong.Rec. 1739 (1962) (remarks of Representative Smith):

The 1962 bill also makes kickbacks, bribery, and looting from these funds Federal felonies. These were the very abuses which initiated legislative action in this field and yet as the law stands now, none of these flagrant abuses are Federal crimes.

Senator Javits brought home the necessity for the 1962 Act:

It seems to me that there is a fiduciary relationship imposed on anyone who is charged with the administration of a fund, whether it is technically a fiduciary, like a bank or a trust company, or not; and that, therefore, if we were merely going to depend on the criminal statutes and other statutes of accountability which relate to a fiduciary, we would not have this bill at all.
The point is that we feel there must be in the Federal law greater sanctions than are inherent in the usual laws relating to fiduciaries, which are essentially State administered; hence the reason for the bill.

108 Cong.Rec. 1931 (1962).

The Douglas committee, which investigated the administration of Employee Benefit Plans, unearthed instance upon instance where exorbitant and unreported commissions were paid to brokers and insurance companies doing business with union employee benefit plans. S.Rep. No. 1734, 84th Cong., 2d Sess. (1956). The ultimate conclusion of Douglas' investigation was that in order to deter and prevent these abuses, there must be full disclosure of the costs expended to administer and operate the plans. Id. In the words of Senator Douglas: "For sunlight is a great disinfectant. Investors and beneficiaries are entitled to the truth." See 108 Cong. Rec. 1937 (1962).

The legislative history, therefore, makes it clear that congress set out to ban all conflict of interest payments when it enacted § 1954, see U.S. v. Romano, 684 F.2d 1057, 1064 (2d Cir.1982), by requiring all fiduciaries of benefit plans to be honest and straight-forward when handling union funds. This, Congress felt, could only be obtained by requiring fiduciaries to disclose the financial activities involved in administering plan funds, and then, leaving it to the beneficiaries to decide whether their funds were being properly handled.

A review of § 1954 itself proves this view of the statute correct. Throughout § 1954, Congress consistently used very broad language to protect plan beneficiaries from dishonest or unfaithful fiduciaries. See Romano, supra, 684 F.2d at 1064. First, the statute encompasses almost every conceivable person who could deal with or administer a benefit plan. See § 1954(1)-(4). Then, the statute prohibits the receipt of any fee, kickback, commission, gift, loan, money, or thing of value. Moreover, the statute punishes the receipt of any of these things either "because of," or with "the intent to be influenced" with respect to any decision concerning a benefit plan. Thus Congress was not only...

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1 cases
  • U.S. v. Schwimmer, 1411
    • United States
    • U.S. Court of Appeals — Second Circuit
    • December 27, 1989
    ...was required to disclose his commissions in order to come within the "bona fide compensation" exception provision of 18 U.S.C. § 1954. 700 F.Supp. 104. The government responds that the exception, which allows compensation for services actually rendered to an employee benefit plan, requires ......

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