DeWaay settles with Labor Department over retirement plan recommendations

Adviser agrees to pay more than $500,000 over ERISA violations

Apr 14, 2014 @ 4:26 pm

By Darla Mercado

dewaay, department of labor, erisa, phyllis borzi, violations, recommendations
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Famed financial adviser Donald Gene DeWaay Jr. has reached a settlement with the Labor Department to pay $341,487 to 68 retirement plans following federal investigations into some of his firm's sales.

The DOL's Employee Benefits Security Administration claimed Mr. DeWaay, the firms he owns and a group of ex-employees had all violated the Employee Retirement Income Security Act of 1974 when they recommended certain investments to clients in retirement plans between May 2007 and November 2004, according to new settlement documents released on Monday.

Over the next five years, he also will shell out an additional $212,727 to other ERISA clients with whom he worked, according to the DOL's settlement.

Mr. DeWaay owns registered investment advisory shop DeWaay Capital Management Inc., DeWaay Benefit Administrator, an employee benefits plan administrator, and defunct broker-dealer DeWaay Financial Network.

Per the Labor Department, EBSA investigators discovered that Mr. DeWaay's companies and the advisers assessed their clients higher fees than what was initially agreed upon. Further, the recommendations led Mr. DeWaay, his firm and former employees to receive commissions from third parties, the DOL noted.

“By ignoring the best interests of those participants, the defendants in this case didn't simply violate the law; they violated the faith of conscientious workers who trusted DeWaay and his employees to help them prepare for a secure retirement,” Phyllis C. Borzi, assistant secretary of labor for Employee Benefits Security, said in a statement.

As part of the agreement, Mr. DeWaay, the firms and a group of four brokers who worked with him will need to disclose to ERISA plans whether they are acting as fiduciaries and spell out the fees received. Mr. DeWaay and the advisers also have agreed that they will either not receive commissions from third parties or they will refund all of those commissions to the retirement plan clients, according to the settlement documents.

In addition, Mr. DeWaay and the advisers are subject to a provision that would enjoin them from selling or recommending so-called “market alternative investments” to ERISA plans, according to the settlement documents. The list of these alternative investments included private-placement real estate investment trusts, nontraded REITS, structured products and a variety of other investments.

Mr. DeWaay was also removed as trustee of the DeWaay and Associates Inc. 401(k) profit-sharing plan and agreed to no longer act as a fiduciary or service provider to the plan.

A call to Mr. DeWaay was not immediately returned. Three of the four brokers in the settlement — Andrew Kleis, Paul H. Espey and Joshua E. Cross — are now affiliated with Arete Wealth Management. A message left for Mr. Kleis was not immediately returned. Mr. Espey, who works at the same practice with Mr. Cross, had no immediate comment as he said he has not seen the settlement. Mr. Cross was not available for comment.

Brenton Collins, an ex-DeWaay rep who was also part of the settlement and is no longer registered with a Finra firm, was not reachable by phone.

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