Philip Morris Retirement Plan Fraud – Prison Sentences Imposed – Comments by White Collar Crime Speaker Chuck Gallagher

Say you’re a participant in a retirement plan – 401(k) or Profit-Sharing plan – and you need money. ERISA rules, as amended from time to time, provide for early withdrawls if certain requirements are met. In the case of the Philip Morris plan the following was in effect as it related to their plan:

Participating employees were permitted to withdraw the accumulated funds only after the occurrence of a permissible event specified in the plan, such as a financial hardship. In the event of a qualifying hardship, a Philip Morris employee could make an early withdrawal, provided that the amount of any withdrawal not exceed the amount actually needed to satisfy the immediate and heavy financial need. Hardship withdrawals were allowed by the Philip Morris DPSP to, among other things, make payment of the costs directly related to the purchase of a principal residence for the employee. If an employee made a hardship withdrawal for the purchase of a residence, DPSP rules required the employee to submit supporting documentation detailing the proposed purchase of the primary residence necessitating the hardship withdrawal.

The rules seemed reasonable – but rules none the less. So what if you wanted money but didn’t qualify? Well – it seems if there is a need someone will find the way.

Wanda Branch, age 40, and Bernadine Doggett, age 52, were both sentenced to prison from their involvement in a mail fraud scheme resulting in a number of fraudulent withdrawls from Philip Morris USA, Inc. retirement accounts. Seems these two as well as two other defendants – Steven R. Day and William M. Cooke – found a way to make some money and “help” others at the same time.

Each defendant confessed to assisting Philip Morris employees submit false hardship withdrawal requests to fraudulently obtain money out of DPSP accounts. In connection with the charged transactions, each defendant admitted to preparing false and fictitious real estate documentation asserting that a Philip Morris employee had a contract to purchase a residence located in the Richmond area. In fact, none of the employees was purchasing a principle residence. Using the fraudulent documentation, Philip Morris employees submitted the false Hardship Withdrawal Applications to request a hardship withdrawal of a specific amount from the Philip Morris DPSP accounts. The withdrawals usually were in excess of $10,000. The employees falsely listed “for the purchase of a primary residence” as the “Hardship Reason” for the withdrawals. Based on the fraudulent documentation, each withdrawal was approved, though none would have been had the truth been known. Upon receipt of the DPSP funds by United States mail from Fidelity Investments Institutional Services Company, Inc., d/b/a Fidelity Employer Services Company, the third-party recordkeeper, located in Massachusetts, the employee would pay the defendant for preparing the fraudulent documentation submitted in support of the Hardship Withdrawal Application.

So they committed fraud. How much was that worth? People paid between $1,000 and $2,000 in order to gain the paperwork to receive the plan distributions.

Was the small amount received worth the price? As a white collar crime speaker, (www.chuckgallagher.com) I can speak from experience – there is no amount worth the life changes that come from a prison experience. Each of these four will be known for the rest of their lives as convicted felons – not a title to be proud of.

Every choice has a consequence! Perhaps if folks might consider what could happen as a result of the choices made – perhaps they might be more careful.

Comments are welcome!