The Gospel According to Matthew
If there is one thing that deserves our contempt more than anything else, it is people who preach one set of rules while seemingly unable to live up to those very same standards.
Countless examples abound in business, religion and politics. One of the more interesting recent cases of "do as I say, not as I do" is that of Matthew D. Hutcheson.
In April of this year, Hutcheson was indicted on 17 counts of wire fraud and 14 counts of misappropriation of funds. Before we get into what he did to draw the ire of the federal authorities, first a little background on the man in question.
Hutcheson held himself out as an investment expert and independent fiduciary. In other words, he invested others people's money, - and - by taking on fiduciary responsibility, claimed to be doing so solely in the best interest of those clients. In addition to this role, which he held at an investment firm that shared his and his partner's names, he also co-wrote a book on 401(k) plans and testified before Congress championing greater transparency in the retirement investing industry.
By outward appearances, it would seem that Mr. Hutcheson was providing a valuable service and was genuinely interested in doing right by his clients. At least, that is what one would be led to believe based on the Congressional transcripts. The FBI, however, contends that Hutcheson used over $5 million of 401(k) plan assets entrusted to him to purchase various luxury items including a convertible, two SUV's, two motorcycles, renovations for his home, and he also attempted to buy a resort in Idaho.
One of the alleged victims of this scam was Michael Borchelt of Texas who is a partner in Active Learning Services, a company that organizes videogame creation and chess camps for students. Hutcheson was charged with managing the firm's 401(k) plan investments and keeping the plan in compliance with applicable laws. According to Borchelt, the plan was managed by Hutcheson since the mid 2000's and until recently without incident.
The sad truth of the matter is that the plaintiffs - in this case, people like Michael Borchelt and the employees of Active Learning Services and other firms like it - are the ones that suffer well after what's left (if anything) of the assets are returned. Distributions from the plans have been frozen by a court appointed trustee and the board of Active Learning, Inc. voluntarily chose to stop contributions to the company's plan. The potential gains forfeited from missed contributions can certainly add up and are not easily estimable.
Additionally, there are other potential costs to consider: one of which is how the IRS will treat the fraudulent investments made by Hutcheson as they are considered prohibited transactions and therefore possibly subject to taxation. At the very least, it amounts to additional time and energy spent on unraveling one man's misdeeds.
Lawyers for Hutcheson contend that as a fiduciary the defendant had discretion to choose how plan assets were invested and that is merely what he did. Apparently, Mr. Hutcheson thought depreciating luxury items were a suitable investment option for a retirement account. For more information and to see the full indictment against Matthew Hutcheson, click here.
About the author: Michael Prus is the President and Founder of Scale Investment Group, LLC, a registered investment advisory firm based in White Lake, Michigan. The company manages money for clients and is a consumer advocate, most notably championing greater transparency of the investment advisory industry and lower fees for investment products as well as portfolio management services. Contact Michael directly at firstname.lastname@example.org.
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