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Leventhal Sutton & Gornstein (LS&G) Case

A participant in the LS&G 401(k) Profit Sharing Plan, Jess Leventhal, the Plan and firm itself sued consulting firm MandMarblestone Group (MMG) and plan custodian, Nationwide, for breach of contract, breach of fiduciary duty and “negligence related to cyberfraud against Jess Leventhal’s plan account.” The Plan currently allows withdrawals initiated by form. Subsequent to Mr. Leventhal’s legitimate request for $15,000, (initiated via form and sent via email to MMG), several other fraudulent withdrawal forms were sent to MMG, appearing to originate from Mr. Leventhal’s office email account, requesting that funds be sent to a bank account not registered to Mr. Leventhal, and likewise not on file. Despite the circumstances, over $400,000 in illegitimate withdrawal requests were honored, depleting Mr. Leventhal’s account completely. The defendants are alleged of failing to act with “requisite prudence and diligence” upon receipt of the uncharacteristic and frequent withdrawal requests, as well as failing to implement safeguards and verification processes for participant data to prevent instances of fraud. As the plaintiffs are identified as plan fiduciaries in the plan document, the defendants allege that the plaintiffs are equally liable to the extent that the defendants are liable under ERISA. The court however ruled that the plaintiff’s breach of its fiduciary duties would not absolve a co-fiduciary of liability to the Plan, and thus, the defendants cannot “reduce their joint and several liability.”

www.planadviser.com; May 29,2020.