LABOR, SEC RENEW MEMORANDUM OF UNDERSTANDING REGARDING SHARED INFORMATION ON RETIREMENT AND INVESTMENTS

FROM:   U.S. DEPARTMENT OF LABOR

US Labor Department renews its memorandum of understanding with Securities and Exchange Commission

WASHINGTON — The U.S. Department of Labor announced that it has renewed a memorandum of understanding with the U.S. Securities and Exchange Commission on sharing information on retirement and investment matters. The memorandum was signed by Secretary of Labor Tom Perez and SEC Chair Mary Jo White.

"The department views our work with the SEC on shared interests in recent years as a tremendous success. By renewing this memorandum of understanding, we will continue to better serve all of America's workers who depend on private-sector retirement plans," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "Our experience with the SEC helps to boost the department's enforcement program and ensure that our regulatory and other programs work in tandem with the SEC's initiatives to provide meaningful protections for workers' retirement savings."

The memorandum sets forth a process for the department's Employee Benefits Security Administration and SEC staffs to share information and meet regularly to discuss topics of mutual interest. The memorandum also will facilitate the sharing of non-public information regarding subjects of mutual interest between the two agencies. Additionally, both agencies will cross-train staff with the goal of enhancing each agency's understanding of the other's mission and investigative jurisdiction.

As more and more investors turn to the markets to help secure their futures, pay for homes and send children to college, the shared investor protection mission of the SEC and the Department of Labor is more vital for America's workers than ever before. The renewed memorandum reinforces the agencies' historical commitment to share information and work together on a variety of regulatory, enforcement, public outreach, research and information technology matters.
EBSA's mission is to assure the retirement, health and other workplace-related benefits of America's workers, retirees and their families. In the retirement area, EBSA has authority over private-sector retirement plans including 401(k) plans and IRAs, plan fiduciaries, and service providers.

U.S. DEPARTMENT OF LABOR ANNOUNCES $220 MILLION BENEFITS SETTLEMENT IN BERNIE MADOFF PONZI SCHEME

FROM: U.S. DEPARTMENT OF LABOR

NEW YORK — The U.S. Department of Labor today announced a settlement that includes the payment of nearly $220 million to compensate employee benefit plans and other investors that suffered losses through investments in Bernard L. Madoff's Ponzi scheme. The settlement is pending approval by the U.S. District Court for the Southern District of New York and resolves department litigation, actions brought by New York's attorney general, and several private lawsuits and class actions brought on behalf of plans and other investors that invested with Madoff. The settlement was reached with Ivy Asset Management LLC, J.P. Jeanneret Associates Inc., Beacon Associates Management Corp., Andover Associates Management Corp., and their current and former owners and officers.

"The settlement agreement we're announcing today provides a measure of justice for those Americans who worked hard to prepare for their retirement and then saw hoped-for stability disappear," said Secretary of Labor Hilda L. Solis. "My department is committed to ensuring that workers and retirees receive the benefits they've earned and deserve. If approved by the court, this settlement, combined with expected payments from the Madoff bankruptcy estate, will allow worker benefit plans impacted by Bernard Madoff's illegal and reprehensible scheme to recover all, or nearly all, of the money they invested with him."

"Today's settlement brings accountability for one of the greatest financial frauds in American history and justice to defrauded investors. We have recovered over $210 million for the victims who were harmed as a result of the world's most notorious Ponzi scheme," said New York Attorney General Eric Schneiderman. "Ivy Asset Management violated its fundamental responsibility as an investment adviser by putting its own pecuniary interests ahead of the interests of its clients. An investment adviser should apprise its clients of risks, but Ivy deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses."

The department sued Ivy, Jeanneret, Beacon, Andover and their owners and officers Oct. 21, 2010, for alleged violations of the Employee Retirement Income Security Act. The suit alleged that they breached their fiduciary duties to a number of benefit plans by recommending, making and maintaining investments with Madoff, thus losing hundreds of millions of dollars in assets needed for the pension and health benefits of thousands of workers.

"Nothing can make up for the years-long agony that plan administrators and participants, and individual investors were put through by these defendants and Madoff," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "But this settlement should go a long way toward making victims financially whole and, hopefully, closing a painful chapter for many workers and families."

Ivy served as the investment adviser for Jeanneret, Beacon and Andover, and introduced those parties to Madoff. The suit alleged that Ivy misrepresented and concealed doubts and suspicions about Madoff, including the belief that no investment with Madoff was justified. The suit further alleged that Ivy concealed its suspicions because the investments made by Jeanneret, Beacon, and their plan clients and other investors generated enormous fees for Ivy and contributed significantly to the assets under Ivy's management. The department alleged that Ivy made the decision not to sacrifice those financial benefits by disclosing the true nature of its doubts about Madoff, especially because management did not think the company could escape legal liability for those investments.

Jeanneret served as the investment manager for more than 70 plans that invested with Madoff through several methods, including its own fund of funds, starting in 1991. The department's suit alleged that the company and its principals made material misrepresentations and failed to disclose material facts to their ERISA-covered plan clients that invested with Madoff. These included failing to disclose that Ivy had informed Jeanneret that it was unable to perform due diligence on Madoff. Jeanneret also allegedly failed to disclose to its clients that it had entered into a new agreement with Ivy in 2007 that eliminated Madoff from Ivy's due diligence responsibilities, and failed to disclose that Ivy recommended Jeanneret reduce plan client and investor exposure to Madoff.

Additionally, the suit alleged that Jeanneret largely ignored Ivy's recommendations to reduce its clients' Madoff investments and failed to take prudent steps to investigate irregularities about Madoff and his purported trading, while taking substantial amounts in fees as the investment manager for the plans. Finally, Jeanneret and its owners and officers allegedly violated ERISA based on their fee arrangement, which provided for higher fees for Madoff investments than for other types of investments. This arrangement gave them the ability to set their own compensation by exercising their discretion to recommend and make Madoff investments for plans.

Beacon and Andover were the investment managers for the Beacon and Andover funds, which invested heavily with Madoff starting in the early 1990s. Many employee benefit plans, including Jeanneret's clients, invested in the Beacon and Andover funds. Like Jeanneret, the department alleged that the two fund companies and their owners and officers largely ignored Ivy's recommendations to reduce their Madoff investments and failed to take prudent steps to investigate Madoff, while still taking substantial amounts in fees as the investment managers for the Beacon and Andover funds. The suit also charged Beacon, Andover and their principals with making misrepresentations and failing to disclose to their plan investors that Ivy had informed them it was unable to perform due diligence on Madoff, and that Beacon and Andover had entered into agreements with Ivy that eliminated Madoff from Ivy's due diligence responsibilities.

Under the settlement agreement, Ivy and its principals have agreed to pay a total of $210 million. Jeanneret and its owners, John P. Jeanneret and Paul Perry, have agreed to pay $3 million. Beacon and Andover and their owners, Joel Danziger and Harris Markhoff, have agreed to pay $3.5 million and relinquish a claim of more than $3.3 million for management fees.

The settlements resulted from investigations conducted by the New York and Boston regional offices of the Employee Benefits Security Administration, an agency of the Labor Department. Litigation was conducted by the Plan Benefits Security Division of the department's Office of the Solicitor in Washington, D.C.

Workers in employer-sponsored health and retirement benefit plans who feel that they have been denied a benefit inappropriately, or have questions about benefits laws, can contact an EBSA benefits adviser by visiting http://www.askebsa.dol.gov or calling 866-444-EBSA (3272).

NEW SEC RULES ON RESOURCE EXTRACTION PAYMENT DISCLOSURE

FROM:  U.S. DEPARTMENT OF LABOR
FACT SHEET
Disclosing Payments by Issuers Engaged in Resource Extraction
Background
In 2010, Congress passed the Dodd-Frank Act, which directs the Commission to issue rules requiring the disclosure of certain payments made to the federal government or foreign governments by resource extraction issuers – companies engaged in the development of oil, natural gas, or minerals.

In particular, Section 1504 of the Act amends the Securities Exchange Act of 1934 by adding a new section, Section 13(q).

The Rules

Who Must Disclose:

The new rules require a resource extraction issuer to disclose payments made to governments if:

• The issuer is required to file an annual report with the SEC.
• The issuer engages in the commercial development of oil, natural gas, or minerals.

The new disclosure requirements apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.

In addition, the issuer is required to disclose payments made by a subsidiary or another entity controlled by the issuer. A resource extraction issuer needs to make a factual determination as to whether it has control of an entity based on a consideration of all relevant facts and circumstances.

What Must Be Disclosed:

Under the new rules, a resource extraction issuer is required to disclose certain payments made to a foreign government (including subnational governments) or the U.S. government.

Resource extraction issuers need to disclose payments that are:

• Made to further the commercial development of oil, natural gas, or minerals.
• “not de minimis”
• Within the types of payments specified in the rules.

The rules define commercial development of oil, natural gas, or minerals to include exploration, extraction, processing, and export, or the acquisition of a license for any such activity. The rules define “not de minimis” to mean any payment (whether a single payment or a series of related payments) that equals or exceeds $100,000 during the most recent fiscal year.

The types of payments related to commercial development activities that need to be disclosed include:

• Taxes
• Royalties
• Fees (including license fees)
• Production Entitlements
• Bonuses
• Dividends
• Infrastructure Improvements

The new requirements clarify the types of taxes, fees, bonuses, and dividends that are required to be disclosed. These types of payments generally are consistent with the types of payments that the Extractive Industries Transparency Initiative suggests should be disclosed. Congress specifically referenced the EITI in defining “payment” in the law.

The rules require a resource extraction issuer to provide the following information about payments made to further the commercial development of oil, natural gas, or minerals:

• Type and total amount of payments made for each project.
• Type and total amount of payments made to each government.
• Total amounts of the payments, by category.
• Currency used to make the payments.
• Financial period in which the payments were made.
• Business segment of the resource extraction issuer that made the payments.
• The government that received the payments, and the country in which the government is located.
• The project of the resource extraction issuer to which the payments relate.

The new rules leave the term “project” undefined to provide resource extraction issuers flexibility in applying the term to different business contexts. However, the rule release provides some guidance on the Commission’s view of what a project would be.

How It Must Be Disclosed:

The new rules require a resource extraction issuer to disclose the information annually by filing a new form with the SEC (Form SD). The information must be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (XBRL) format.

When It Must Be Disclosed:

A resource extraction issuer would be required to file the form on the SEC public database EDGAR no later than 150 days after the end of its fiscal year.

A resource extraction issuer would be required to comply with the new rules for fiscal years ending after Sept. 30, 2013. For the first report, most resource extraction issuers may provide a partial report disclosing only those payments made after Sept. 30, 2013.