The U.S. Department of Labor has obtained a consent judgment and order forcing the former president of AA Capital Partners to reinstate $50 million in losses to five Michigan pension funds.

Formerly charged with abusing the plans’ assets to benefit his firm and himself, John Orecchio, the president and co-owner of the Chicago-based investment firm, is barred from serving in a fiduciary or service provider capacity to any employee benefit plan governed by the Employee Retirement Income Security Act.

“Fiduciaries have a legal obligation to ensure plan assets are used only to pay benefits and reasonable expenses of a plan.  Those who violate that trust will be held accountable for their actions,” says Secretary of Labor Hilda L. Solis.

Even though Orecchio has submitted proof that he is currently unable to make restitution, the consent judgment requires him to submit annual financial statements to the DOL and to pay off the judgment as he receives funds.

On April 10, 2008, the DOL filed a lawsuit against AA Capital Partners, its chief financial officer Mary Elizabeth Stevens, affiliate AA Capital Liquidity Management, LLC, and Orecchio for misusing plan assets and charging the plans, which covered more than 60,000 participants, excessive fees on investments.

An additional count was added in July 2008 when the DOL amended the complaint, alleging that plan assets were imprudently invested in a limited partnership created to finance a Nevada food, vitamin and beverages manufacturer, even though the deal lacked an investment strategy.

The DOL argued that the defendants improperly used $25.9 million of the plans’ assets to pay for the operating expenses of the LP, a strip club owned by Orecchio, and renovations to a horse farm, among other items. Further, they drew unauthorized fees from the pension plans. In 2006, the company was entrusted to a court-appointed receiver.

The pension plans that underwent losses were the Carpenters Pension Trust Fund of Detroit and Vicinity, Operating Engineers Local No. 324 Pension Fund, Michigan Regional Council of Carpenters Annuity Fund, Millwrights’ Local No. 1102 Supplemental Pension Fund, and Michigan Teamsters Joint Council #43 Pension Fund.

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