# Luzerne County Retirement Board v. Makowski

> District Court, M.D. Pennsylvania · November 27, 2007 · 627 F. Supp. 2d 506

URL: https://www.frixlaw.com/law-library/cases/2285927

## Case

- **Full name:** The LUZERNE COUNTY RETIREMENT BOARD, Plaintiff, v. Thomas MAKOWSKI, Et Al., Defendants
- **Court:** District Court, M.D. Pennsylvania
- **Decided:** November 27, 2007
- **Citations:** 627 F. Supp. 2d 506; 2007 U.S. Dist. LEXIS 87246
- **Precedential status:** Published
- **Opinion:** Opinion by Caputo
- **Judges:** Caputo
- **Cited by:** 3 later opinions in the Frix Law Library

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## Opinion text

MEMORANDUM
A.RICHARD CAPUTO, District Judge.
TABLE OF CONTENTS
BACKGROUND................................................................512
I. Factual History........................................................512
A. Introduction.......................................................512
B. The Luzerne County Retirement Fund ...............................512
C. The Joyce-Williamson Agreement....................................513
D. The Joyce and Williamson Campaign Contributions.....................517
E. The Safeco Investments.............................................517
F. The Provident Annuities.........................................'... 519
G. The Manulife Annuity Contracts.....................................524
H. The FSI Bonds....................................................527
I. The Wells Agreement ..............................................527
J. Rochdale..........................................................528
K. LPL .............................................................528
L. The Fund’s Accountants — Snyder
&
Clemente.........................529
M. The Fund’s Auditors — Zavada & Associates...........................529
N. The Fund’s Actuaries — The Hay Group...............................530
O. ASCO’s Annual Reports ............................................531
P. The Retirement Office..............................................531
Q. The Annual Meetings...............................................533
R. Alleged Concealment of the Scheme..................................533
S. Urban and Flood Elected; Investigation Commences...................534
T. The Board Terminates ASCO........................................535
1. The September 5, 2002 Board Meeting............................535
2. The September 17, 2002 Board Meeting...........................536
*511
3. The October 1, 2002 Board Meeting...............................537
U. The Board Liquidates the Fund’s Investments.........................538
V. Solicitor Hassey’s Letters...........................................539
W. Schnader, Harrison’s Investigation...................................540
X. The County Sues the Board.........................................541
II. Procedural History.....................................................541
A. The Complaint.....................................................541
B. The Motions to Dismiss the Complaint................................542
C. Counterclaims and Crosselaims......................................542
D. Stipulations of Dismissal............................................543
E. The Motions to Dismiss the Counterclaims and Crossclaims.............543
F. Flood Dropped as a Plaintiff.........................................543
G. The Instant Motions for Summary Judgment..........................543
LEGAL STANDARD............................................................544
DISCUSSION..................................................................545
I.Defendants’ Motions for Summary Judgment — Plaintiffs Federal Claims.....545
A. RICO Claims (Counts III, IV and VI) ................................545
1. RICO — In General .............................................545
2. Conducting/Participating in a RICO Enterprise (Count III)..........545
a. PSLRA...................................................546
i. Are the Annuities “Securities”? ..........................546
ii. Rule 151 Safe Harbor...................................554
iii. Section 3(a)(2).........................................554
iv. Are the Annuities “Investment Contracts”?................555
v. Actionable Securities Fraud.............................556
vi. Conclusion as to PSLRA................................559
b. Scheme to Defraud.........................................559
i. Bribery...............................................560
ii. Failure to Disclose a Conflict of Interest..................563
iii. Conclusion as to Scheme to Defraud......................570
c. Conclusion as to Count III...................................570
3. RICO Conspiracy Claims (Counts IV and VI)......................571
a. Count IV..................................................571
b. Count VI..................................................571
B. Violation of the Investment Advisors Act (Count VII)...................572
1. Introduction...................................................572
2. Legal Standard ................................................572
3. Analysis.......................................................572
II. State Law Claims, Counterclaims and Third-party Claims ...................574
CONCLUSION.................................................................574
Presently before the Court are eleven (11) motions for summary judgment. (Docs. 390, 391, 400, 403, 406, 409, 414, 419, 420, 426, 427.) Defendants Nationwide Life Insurance Company (Doc. 390), Manufacturers Life Insurance Company (U.S.A.) (Doc. 391), Thomas Makowski, Thomas Pizano, Frank Crossin and Joseph Jones (Doc. 414), Joseph J. Joyce Associates, Inc., John Joyce and William Joyce (Doc. 419), Safeco Life Insurance Corporation (Doc. 420), ASCO Financial Group, Inc. and Donald Williamson (Doc. 426), and Joseph Perfilio (Doc. 427), have filed motions for summary judgment as to Plaintiff the Luzerne County Retirement Board’s Complaint (Doc. 1).
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Third-party Defendant Michael Morreale has filed a motion for summary judgment as to the third-party complaints filed against him by Makowski, Pizano, Crossin and Jones, as well as by Williamson, ASCO Financial Group, Inc. and Perfilio. (Docs. 400, 406.) Counterclaim Defendant, and former Plaintiff, Stephen Flood has filed a motion for summary judgment as to the counterclaims of Williamson, ASCO Financial Group, Inc. and Perfilio. (Doc. 403.) Plaintiff has also filed a motion for summary judgment as to the counterclaims of Williamson, ASCO Financial Group, Inc. and Perfilio. (Doc. 409.)
For the reasons set forth below, Defendants’ motions will be granted as to Plaintiffs federal claims (Counts III, IV, VI and VII). Summary judgment will be entered in favor of Defendants as to these claims. The Court has jurisdiction over Plaintiffs federal claims pursuant to 28 U.S.C. § 1331 . The Court will decline to exercise its supplemental jurisdiction, pursuant to 28 U.S.C. § 1367 , over Plaintiffs state law claims (Counts I and VIII), as well as the various state law counterclaims and third-party claims. As such, these claims will be dismissed without prejudice.
BACKGROUND
I. Factual History
A. Introduction
This action focuses on investment contracts entered into by the Luzerne County Retirement Board (the “Board”) and/or its members between 1988 and 2002. The current Board (“Plaintiff’) has alleged that several of its former members engaged in a pay-to-play scheme, awarding contracts to invest or manage retirement fund assets and, in exchange, receiving political contributions to finance their reelection campaigns. The former Board members allegedly involved in the scheme are Thomas Makowski, Thomas Pizano, Frank Crossin and Joseph Jones (collectively, at times, the “former Board members”). (Compl. ¶¶ 2-5, Doc. 1 at 7.)
B. The Luzerne County Retirement Fund
Luzerne County maintains a retirement fund (the “Fund”) to provide its employees with income upon their retirement.
See County of Luzerne v. Luzerne County Retirement Board,
882 A.2d 531, 533 (Pa.Commw.Ct.2005). The Fund is a legal entity which was created, and is governed, by the County Pension Law, 16 P.S. § 11651
et seq. See County of Luzerne,
882 A.2d at 534 . Employees of Luzerne County make contributions to the Fund through payroll deductions and, upon retirement, qualify to receive payments from the Fund. 16 P.S. § 11657(a), (b);
McCarrell v. Cumberland County Employees Retirement Board,
120 Pa.Cmwlth. 94 , 547 A.2d 1293, 1294-95 (1988); (Def.’s Ex. 95 at ZAV2095, Doc. 443 at 8.) The Fund is a “defined benefit plan,” which means that retirees are entitled to fixed benefit payments, regardless of the assets available in the Fund to pay those benefits.
(See
LCRB 14292, Doc. 496-4 at 44; Def.’s Ex. 35 at LCRB 08580, Doc. 439-14 at 4.) To the extent that the benefit payments owed by the Fund to retirees exceed the Fund’s assets, Luzerne County must contribute taxpayer money to make up the difference.
(See
Def.’s Ex. 35 at LCRB 08580, Doc. 439-14 at 4.)
The Fund is administered by the Board. 16 P.S. § 11654(b). The Board consists of five (5) elected officials of Luzerne County — the three (3) Commissioners, the Controller and the Treasurer.
Id.; County of Luzerne,
882 A.2d at 534 n. 2. Board members are trustees of the Fund and serve as its fiduciaries. 16 P.S. § 11659 (“The members of the board shall be trustees of
*513
the fund, and shall have exclusive management of the fund with full power to invest the moneys therein subject to the terms, conditions, limitations and restrictions imposed by law upon fiduciaries”).
Meetings of the Board are chaired by the Chairman of the Luzerne County Commissioners. 16 P.S. § 11654(b). Three (3) members of the Board constitute a quorum.
Id.
The Board is subject to the provisions of the Pennsylvania Open Public Meeting Law, 65 Pa. Cons.Stat. Ann. § 701
et seq,
or Sunshine Act. 65 Pa. Cons.Stat. Ann. § 703 (providing that any board of any political subdivision of the Commonwealth is subject to the Sunshine Act).
In March of 1988, the Board’s members were Frank Crossin, Frank Trinisewski, and Jim Phillips, the three (3) Luzerne County Commissioners, Joseph S. Tirpak, the Luzerne County Controller, and Michael Morreale, the Luzerne County Treasurer. (Def.’s Ex. 56 at FLOOD 5459, Doc. 441-6 at 7.)
1
C. The Joyce-Williamson Agreement
According to Plaintiff, the putative pay-to-play scheme originated in 1987 by means of a “secret, undisclosed handshake deal” between Donald Williamson, John Joyce, and Joseph J. Joyce, Sr., John Joyce’s father, now deceased. (Pl.’s Br. in Opp’n at 10., Doc. 484-1 at 27;
see
John J. Joyce Dep. 48:18-49:16, Feb. 21, 2006, Doc. 434-15 at 13.)
Donald Williamson, doing business as ASCO Financial Group, Inc. (“ASCO”) (collectively, at times, “Williamson/ASCO”), a Pennsylvania corporation (Answer of ASCO ¶ 6, Doc. 201 at 2), is an insurance broker and investment advisory representative. (Donald Williamson Dep. 35:4-38:22, Aug. 17, 2005, Doc. 435-18 at 10-11.) Donald Williamson is the president and chief executive officer of ASCO. (Answer of ASCO ¶7, Doc. 201 at 3.) Williamson is also a broker/dealer for FSC Securities Corporation (“FSC”). (Williamson Dep. 31:19-24, Doc. 435-18 at 9.)
2
His wife Maria Williamson is the secretary and vice president of ASCO. (Answer of ASCO ¶ 8, Doc. 201 at 3.)
John Joyce is president and part owner, along with his brothers Joseph J. Joyce, Jr. and William Joyce, of Joseph J. Joyce Associates, Inc. (“JJJA”) (collectively, at times, the “Joyces”), a Pennsylvania corporation principally engaged in the sale of insurance products. (Answer of JJJA, John J. Joyce and William J. Joyce ¶ 13, Doc. 205 at 2;
see
John J. Joyce Dep. 25:25-26:5, Doc. 434-15 at 7-8.) He is also part owner of Joyce, Jackman & Bell Insurers (“JJ
&
B”), a Pennsylvania partnership and insurance agency.
(Id.
¶ 14, Doc. 205 at 2;
see
John J. Joyce Dep. 9:22-10:2, Doc. 434-15 at 3-4.) Shortly after John Joyce graduated from college in 1977, he went to work for Williamson. (John J. Joyce Dep. 9:13-17, Doc. 434-15 at 3.) John Joyce later became the Secretary of ASCO. (Answer of JJJA, John J. Joyce and William J. Joyce ¶ 16, Doc. 205 at 2.) He also held an ownership interest in ASCO at one time. (Williamson Dep. 105:20-24, Doc. 435-18 at 27.) John Joyce continues to work for ASCO as a broker. (John J. Joyce Dep. 13:7-9, Doc. 434-15 at 5.)
The late Joseph J. Joyce, Sr. founded and managed both JJJA and JJ
&
B. (John J. Joyce Dep. 9:19-10:2, Doc. 434-15 at 3.) Joseph Joyce, Sr. also held an own
*514
ership interest in (Williamson Dep. 105:20-24, Doc. 435-18 at 27) and served as treasurer of ASCO. (Answer of JJJA, John J. Joyce and William J. Joyce ¶ 15, Doc. 205 at 2.) Joseph Joyce, Sr. was very active in politics, at both the local and national levels. (JJJA, John J. Joyce and William J. Joyce’s Mem. of Law at 2, Doc. 425 at 8;
see
PL’s Br. in Opp’n at 9, Doc. 484-1 at 26.) The Joyces contributed money to the political campaigns of many candidates running for public office, including Makowski, Pizano, Crossin, Jones, Morreale and others.
(Id.
at 2-3, Doc. 435 at 8-9;
see
PL’s Br. in Opp’n at 9, Doc. 484-1 at 26.)
Pursuant to the handshake deal, the Joyces would bring accounts to Williamson/ ASCO, and, in exchange, the Joyces would receive fifty percent (50%) of the commissions Williamson/ASCO received from providing financial services to those accounts. (John J. Joyce Dep. 48:18-49:16, Doc. 434-15 at 13.)
In late 1987, Williamson/ASCO wanted to become investment manager for the Fund. (Williamson Dep. 112:12-23, Doc. 435-18 at 29.) Knowing that Joseph Joyce, Sr. was a major political player in northeastern Pennsylvania, Williamson spoke with John Joyce about the possibility of providing financial services to the Fund. (Williamson Dep. 113:6-13, Doc. 435-18 at 29.) John Joyce then asked his father Joseph Joyce, Sr. to see if he could find somebody in the Luzerne County government that Williamson could speak with about working on the Fund. (Williamson Dep. 113:16-24, Doc. 435-18 at 29.) Apparently, Joseph Joyce, Sr. spoke with Crossin, a Luzerne County Commissioner and Board member, because, in January of 1988, Williamson received a phone call from Crossin to set up an appointment to speak about the Fund. (Williamson Dep. 114:1-20, Doc. 435-18 at 30.) According to Williamson, Crossin was dissatisfied with the fact that all of the Fund’s assets were tied up in a single financial institution. (Williamson Dep. 114:5-17, Doc. 435-18 at 30;
see
Frank Crossin Dep. 14:15-15:6, Aug. 2, 2005, Doc. 434-9 at 5.) In fact, Crossin and other Board members — Tirpak, Morreale and Trinisewski — “had been discussing the multiple manager matrix concept to bring more people into the fund, bring more local people involved, local brokers, local banks and that type thing.” (Crossin Dep. 14:22-15:5, Doc. 434-9 at 5.) At that time, United Penn Bank managed all of the Fund’s sixty million dollars ($60,-000,000) worth of assets. (PL’s Ex. 74 at LCRB 00551-00552, Doc. 454-12 at 3-4.) United Penn Bank’s fees for managing the Fund amounted to approximately fifty-five thousand dollars ($55,000) per year.
(Id.
at LCRB 00552, Doe. 454-12 at 4.)
Williamson met with Crossin later that January of 1988. (Williamson Dep. 114:5-115:2, Doc. 435-18 at 30.) Williamson explained in general terms his proposal that the Fund would be managed using a multiple manager approach which Williamson/ASCO, would administer and coordinate. (Crossin Dep. 24:13-25:2, Doc. 434-9 at 7.) Williamson then met with Charles Gelso, Solicitor for the Board. (Williamson Dep. 115:15-21, Doc. 435-18 at 30.) Gelso provided Williamson with all the documents and financial reports Williamson needed to prepare a formal proposal to present to the Board. (Williamson Dep. 115:15-117:21, Doc. 435-18 at 30.) Next, Williamson met with Tirpak, who placed Williamson/ASCO on the agenda of the Board’s next meeting. (Williamson Dep. 118:6-118:18, Doc. 435-18 at 31.)
At a March 2, 1988 meeting of the Board, Williamson presented his investment proposal. (PL’s Ex. 74 at LCRB00550, Doc. 454-12 at 2.) Williamson proposed a multiple manager approach to the Fund’s management, a strategy which he
*515
asserted would: (1) increase diversification of Fund assets so as to reduce risk to principal; (2) significantly reduce investment management fees; and (3) increase the overall performance of the Fund by (a) utilizing the expertise of various types of financial institutions specializing in a certain class of assets, and (b) creating competition among the Fund’s managers.
(Id.)
The proposal called for four (4) portfolio investment managers: (1) United Penn Bank; (2) First Eastern Bank; (3) First Valley Bank; and (4) Safeco Life.
(Id.)
Williamson/ASCO would coordinate the administrative details required to implement the multiple manager system.
(Id.)
After Williamson had finished his presentation, the Board discussed whether to accept the multiple manager proposal.
(Id.)
Morreale objected to an immediate decision by the Board, stating that “other banks were never contacted nor was it ever discussed by the Board as a unit.”
(Id.)
Morreale “could not see why any hasty decision was required” and “attempted to dissuade the other four members of the Board from making a decision, thus giving more time for consideration to a proposal for multiple management and to allow more than four financial institutions to present proposals.”
(Id.)
Morreale moved to table Williamson’s proposal but no other Board member seconded his motion.
(Id.)
Objections to the Board’s immediate decision also came from United Penn Bank, which did not want to lose control over the entirety of the Fund’s assets, as well as Merchants Bank, Northeastern Bank and the Baltimore Life Insurance Company, which each asked the Board to delay its decision until they had the opportunity to present their own proposals on the subject of multiple fund management.
(Id.)
Notwithstanding the objections to the hastiness of such a decision, Tirpak moved to accept the proposal of Williamson/ASCO.
(Id.)
Phillips seconded Tirpak’s motion.
(Id.)
A vote was then taken.
(Id.)
All Board members except for Morreale voted to accept Williamson/ASCO’s proposal.
(Id.)
Morreale voted against it.
(Id.)
As such, on March 2, 1988, the very same day it was presented with the multiple fund manager proposal, the Board entered into a Consulting Services Agreement (the “ASCO Agreement”) with Williamson/ASCO, retaining Williamson/ASCO to serve as the Fund’s investment consultant and administrative agent. (Def.’s Ex. 56 at FLOOD 5453-5459, Doc. 441-6 at 1-7.) All Board members, including Morreale, signed the ASCO Agreement.
(Id.
at FLOOD 5459, Doc. 441-6 at 7.) Relevant provisions of the ASCO Agreement are set forth in the margin.
3
As per their handshake agree
*516
ment, the Joyces received approximately fifty percent (50%) of the commissions Williamson/ASCO received from work on the Fund.
(See
Joyce Br. in Supp. at 3, Doc. 425 at 9.)
On June 29, 1989, Williamson/ASCO took standing authority to request disbursements or make withdrawals of the Fund’s assets from Safeco Life Insurance Corporation in order to pay participant benefits. (Pl.’s Ex. 115 at ASCO 001491, Doc. 491-3 at 2.) On January 2, 1992, Williamson/ASCO received authority to request disbursements or withdrawals of the Fund’s assets from Provident Mutual Life Insurance Company in order to pay benefits. (Def.’s Ex. 58 at FLOOD 6066, Doc. 441-8 at 1.) On December 31, 1999, the Board entered into a separate contract with Williamson/ASCO, retaining them to administer the daily operations of the Lu
*517
zerne County Retirement Office (the “Retirement Office”). (Pl.’s Ex. 123 at LCRB 00590-00593, Doc. 491-3 at 28-31.) In 2001, the Retirement Office was closed and all of its functions were outsourced to ASCO. (Lois Kammerer Dep. 29:5-7, June 17, 2005, Doc. 434-18 at 8.)
D. The Joyce and Williamson Campaign Contributions
Between 1991 and 2002, the Joyces, their companies, and their employees, contributed eighty-two thousand fifty dollars ($82,050) to the reelection campaigns of Makowski, Pizano and Crossin.
(See
Pl.’s Am. Resp. to JJJA Interrogs. at Ex. A, Doc. 457-6 at 10-12.) Williamson, his wife Maria, as well as agents and employees of ASCO, contributed nineteen thousand seven hundred dollars ($19,700) to the campaigns of Makowski, Pizano, Crossin and Jones.
(See
Pl.’s Resp. to Williamson Interogs. at Ex. A, Doc. 498-2 at'35.)
4
Plaintiff contends that, shortly before or after these contributions were made, Makowski, Pizano, Crossin and Jones, as Board members, “unlawfully caused the Retirement Plan to incur contractual obligations that furthered the lucrative deals made by the ASCO and Joyce defendants. Rather than making those contracts at formal meetings of the Board, they did so by signing or acquiescing [to] the contracts in backroom meetings outside of public view.” (Pl.’s Br. in Opp’n at 14, Doc. 484-1 at 31.)
The contractual obligations entered into as part of this alleged pay-to-play scheme include those entered into with: (1) Safeco Life Insurance Corporation; (2) Provident Mutual Life Insurance Company; (3) The Manufacturers Life Insurance Company (U.S.A.); (4) First Security Investments; (5) Wells Real Estate Funds, Inc.; (6) Rochdale Investment Management, Inc.;
5
and (7) Linsco Private Ledger Corp.
(See id.
at 13-34, Doc. 484-1 at 30-51.)
E. The Safeco Investments
On March 21, 1988, the Board entered into an investment agreement with Safeco Life Insurance Corporation (“Safeco”) to purchase a Qualified Pension Annuity Contract, Series II (“QPA-2”), which would become effective on May 4, 1988. (PL’s Ex. 358 at Safeco 00127-00134, Doc. 456-3 at 1-8.) The QPA-2 was a traditional fixed annuity with a guaranteed rate of return.
(Id.
at Safeco 00127, Doc. 456-3 at 1; PL’s Ex. 360 at Safeco 00116, Doc. 456-4 at 3.) The initial interest rate was approximately eight percent (8%) (PL’s Ex. 358 at Safeco 00127, Doc. 456-3 at 1), "and Safeco promised that in no event would the Fund’s interest rate be less than seven and one-quarter percent (7.25%) for the first five (5) years of the contract and no less than four and one-quarter percent (4.25%) for all contract years thereafter (PL’s Ex. 360 at Safeco 00116, Doc. 456-4 at 3). All deposits were held in Safeco’s general corporate fund, not a separate account.
(See
PL’s Ex. 360 at Safeco 00115, Doc. 456-4 at 2.) Thirteen and one-half million dollars ($13,500,000) of the Fund’s assets was deposited into the QPA-2.
(Id.
at Safeco 00128, Doc. 456-3 at 2.) The QPA-2 agreement was signed by Board members Trini
*518
sewski and Tirpak.
(Id.
at Safeco 00129, 00134, Doc. 456-3 at 3, 8.) Williamson also signed the agreement in his capacity as administrative agent for the Fund.
(Id.
at Safeco 00130, 00134, Doc. 456-3 at 4, 8.) The QPA-2 provided that Williamson/ASCO would receive a three percent (3%) up-front commission based on the thirteen and one-half million dollar ($13,-500,000) deposit, or four hundred five thousand dollars ($405,000). (Id. at Safeco 00130, Doc. 456-3 at 4.) Williamson split this money equally with John Joyce.
(Id.
at Safeco 00131, Doc. 456-3 at 5.) The three percent (3%) up-front commission was in addition to the one-fifth of one percent
(0.2%), or
twenty (20) basis points, that Williamson/ASCO charged as an annual service fee.
(Id.
at Safeco 00130, Doc. 456-3 at 4.)
6
In March 1993, a Safeco “Resource Variable Account A” annuity was established using two million dollars ($2,000,000) of the Fund’s assets. (Pl.’s Ex. 361 at ASCO 000158-000163, Doc. 456-5.) Crossin, Tirpak and Morreale signed the agreement.
(Id.
at ASCO 000160, Doc. 456-5 at 3.)
7
Norm Pickering, of the Hay Group, also signed the agreement.
(Id.)
The Resource Variable Account A was an “unallocated group variable annuity contract.”
(Id.
at ASCO 000161, Doc. 456-5 at 4.) No rate of return was promised. Rather, the values provided by the Resource Variable Account A were based on the investment experience of a separate account and were therefore variable and not guaranteed. (Def.’s Ex. 320 at Safeco 00751, Doc. 451-14 at 1.)
The Resource Variable Account A offered annuitants a variety of investment options, including, among others, equity, money market, bond and growth funds.
(Id.)
These sub-funds were managed by Safeco. (Scott Bartholomaus Dep. 225:5-6, 262:15-19, Mar. 22, 2006, Doc. 434-2 at 6, 15.) Of the two million dollars ($2,000,-000) invested in the Resource Variable Account A, one million dollars ($1,000,000) was invested in an equity sub-fund, five hundred thousand dollars ($500,000) was invested in a growth sub-fund, and five hundred thousand dollars ($500,000) was invested in the Northwest sub-fund. (Def.’s Ex. 321 at Safeco 00746, Doc. 451-15 at 1.) Each of these sub-funds had different objectives, whether it was more conservative or more aggressive and risky. (Bartholomaus Dep. 225:9-14, Doc. 434-2 at 6.)
The Resource Variable Account A, considered by Safeco to be a variable-only annuity, was oftentimes sold in tandem with the QPA-2, considered by Safeco to be a fixed-only annuity. (Bartholomaus Dep. 257:10-22, Doc. 434-2 at 14.) The Resource Variable Account A discloses that Williamson would receive thirty-five percent (35%) of the commission and that JJJA would receive sixty-five percent (65%) of the commission.
(Id.
at ASCO 000161, Doc. 456-5 at 4.)
On December 27, 1993, Fund assets were used to purchase a “Safeflex Allocated Group Variable Annuity” from Safeco. (Pl.’s Ex. 623 at Safeco 00752-00753, Doc. 494-4 at 9-10; PL’s Ex. 624 at Safeco
*519
00754-00755, Doc. 494-4 at 6-7.) Crossin, Tirpak and Morreale signed the Safeflex annuity contract. (PL’s Ex. 624 at Safeco 00755, Doc. 494^4 at 7.)
8
The Safeflex annuity contract combined fixed and variable offerings into one annuity contract — a separate variable account with fixed annuity riders. (Bartholomaus Dep. 263:12-22, Doc. 434-2 at 16; PL’s Ex. 629 at Safeco 00765-00774, Doc. 494-4 at 24-33; PL’s Br. In Opp’n at 103, Doc. 484-1 at 120 (citing Safeco Statement of Material Facts ¶ 41, Doc. 422 at 8).) It appears that the Fund’s assets were placed in an international fund portfolio managed by Scudder/Stevens & Clark. (PL’s Ex. 623 at Safeco 00752, Doc. 494-4 at 9;
see
Bartholomaus Dep. 262:22-263:7, Doc. 434-2 at 15-16.) The Safeflex annuity contract discloses that Williamson and Joseph J. Joyce were agents for Safeco and would split the commission equally.
9
Plaintiff argues that these contracts were “signed by individual Board members in back-room meetings with Williamson, after at least one of those signatories to those contracts received campaign contributions from Safeco.” (PL’s Br. in Opp’n at 20, Doc. 484-1 at 37.) Williamson/ASCO and JJJA split the commissions received from the sale of these Safeco annuities.
(See
PL’s Ex. 361 at ASCO 000161, Doc. 456-5 at 4; PL’s Ex. 623 at Safeco 00752, Doc. 494-4 at 9.)
F. The Provident Annuities
On October 3, 1991, Williamson/ASCO entered into á “Special Agent’s Agreement” with Provident Mutual Life Insurance Company (“Provident”),
10
thus enabling them to sell Provident’s insurance products and annuities. (PL’s Ex. 550 at NAT 00899-00904, Doc. 494-3 at 24-29.) Shortly thereafter, on February 18, 1992, John Joyce entered into a “Special Agent’s Agreement” with Provident to sell the same insurance products and annuities. (PL’s Ex. 21 at NAT 00915-00919, Doc. 487-2 at 1-5.)
On December 18, 1991, at a duly convened public meeting, the Board adopted and signed a resolution “to further diversify the asset management and expand the performance of the retirement fund.” (PL’s Ex. 30 at NAT 01185, Doc. 454-3.) To that end, the Board appointed Provident as an additional “Pension Fund Investment Portfolio manager.”
(Id.)
All five (5) Board members — Crossin, Trinisewski, Phillips, Tirpak and Morreale— voted in favor of the resolution. (Def.’s Ex. 24 at LCRB 00561, Doc. 439-5 at 4.) All five (5) Board members signed the resolution.
(Id.)
Six million dollars ($6,000,000) was transferred to Provident to purchase a group annuity contract (the “First Provident Annuity”). (PL’s Ex. 30 at NAT 01185, Doc. 454-3; PL’s Ex. 29 at ASCO 001478-001479, Doc. 487-2 at 12-
*520
13.)
11
The First Provident Annuity offered eight (8) different sub-funds into which Fund assets could be placed.
(Id.)
Only one, the “Guaranteed Investment Certificates,” offered a guaranteed rate of return.
(Id.; see
Pl.’s Ex. 91 at NAT 00002, Doc. 454-17 at 1.) The Fund’s money was invested in three sub-funds — a value equity fund, a bond fund and an aggressive equity fund. (PL’s Ex. 29 at ASCO 001478-001479, Doc. 487-2 at 12-13.)
12
Under the terms of the First Provident Annuity, these sub-funds were separate accounts, segregated from all other assets of Provident. (PL’s Ex. 91 at NAT 00018, 00022, Doc. 454-17 at 16, 20.) The assets placed in the sub-funds were managed by Provident.
(Id.
at NAT 00023, Doc. 454-17 at 21 (“The investment and reinvestment of such assets will be made by [Provident] in its discretion based solely upon [Provident’s] determination of market conditions at the time such investment or reinvestment is made.”).) The First Provident Annuity provided that the value of the Fund’s sub-fund investments could increase or decrease with investment experience and were not guaranteed as to fixed-dollar amounts.
(Id.
at NAT 00002, Doc. 454-17 at 1.)
Only Crossin signed the First Provident Annuity. (PL’s Ex. 29 at ASCO 001479, Doc. 487-2 at 13.)
13
Williamson and John Joyce, as agents for Provident, derived hundreds of thousands of dollars in commissions as a result of the First Provident Annuity. (Nationwide Statement of Material Facts ¶ 37, Doc. 398;
see
PL’s Ex. 32 at NAT 01160-01167, Doc. 487-2 at 15-22.)
14
*521
In January 1993, an additional five million dollars ($5,000,000) was invested in the First Provident Annuity. (Pl.’s Ex. 568 at ASCO 001461-001463, Doc. 456-20 at 2-4.) All five (5) Board members — Crossin, Tucker, Phillips, Tirpak and Morreale signed a letter authorizing this additional investment of the Fund’s money in the First Provident Annuity.
(Id.
at ASCO 001462, Doc. 456-20 at 3.) This money was placed in the aggressive equity fund and the fixed income fund.
(Id.
at ASCO 001463, Doc. 456-20 at 4.)
15
The fixed income fund was unlike the other sub-funds, as money invested therein was held in Provident’s general account. (Pl.’s Ex. 91 at NAT 00014, Doc. 454-17 at 13.) The fixed income fund promised a guaranteed interest rate that was set by Provident at the beginning of each calendar year.
(Id.)
Beginning in 1994 and continuing until 2002, Williamson and William Joyce solicited political contributions for Makowski, Crossin, Pizano and Morreale from Jeffrey Hugo, a Provident employee. (Jeffrey Hugo Dep. 116:16-122:14, Nov. 16, 2005, Doc. 434-14 at 30-32;
see
PL’s Ex. 598 at NAT 002107-002100, Doc. 456-21 at 1-4.) Hugo testified that, for example, Williamson and William Joyce would call him and invite him to events held to raise money for these then Board members’ reelection campaigns. (Hugo Dep. 118:4-10, Doc. 434-14 at 31.) Between August 16, 1994 and August 11, 2002, Hugo contributed approximately two thousand nine hundred dollars ($2,900) to the Crossin, Makowski, Pizano and Morreale to finance their campaigns.
(See
Nationwide Resp. to PL’s Interrogs. at 3, Doc. 498-2 at 21; PL’s Ex. 37 at MPCJ 01221, Doc. 487-4 at 13; PL’s Ex. 41 at MPCJ 00477, Doc. 487-4 at 34; PL’s Ex. 48 at LCRB 032417, Doc. 488-3 at 8.) Plaintiff submits that these political contributions on the part of a Provident employee were the impetus for the former Board members, specifically Makowski, Crossin and Pizano, to purchase three more Provident annuities for the Fund. (PL’s Br. in Opp’n at 24, Doc. 484-1 at 41.)
On August 31, 1995, Crossin and Tirpak, on behalf of the Board, entered into a second group annuity contract with Provident (the “Second Provident Annuity”). (PL’s Ex. 182 at ASCO 001444-001450, Doc. 455-13 at 1-7.)
16
The Second Provident Annuity was purchased for four million dollars ($4,000,000).
(Id.
at ASCO 001449, Doc. 455-13 at 6.) This money was placed in the United States Government bond fund, the balanced fund, the diversified equity and international equity funds. (Id.)
17
As with the First Provident Annui
*522
ty, these sub-funds were separate accounts segregated from all other assets of Provident.
(See
Pl.’s Ex. 34 at NAT 001251, Doc. 454-5 at 42.) Also as with the First Provident Annuity, the values of these separate accounts could increase or decrease with investment experience and were not guaranteed as to fixed-dollar amounts.
(Id.
at NAT 001210, Doc. 454-5 at 1.)
Hugo is listed on the Second Provident Annuity as the “Pension / Service Representative.”
(Id.
at ASCO 001448, Doc. 455-13 at 5.) Williamson and Joseph Joyce, Sr. are listed as agents on the form.
(Id.)
It appears that they split the commission on the Second Provident Annuity. (Id.)
18
On August 20, 1999, Crossin, Makowski and Jones entered into a third group annuity contract with Provident (the “Third Provident Annuity”), committing approximately thirty-seven million dollars ($37,-000,000) of the Fund’s assets to Provident and consolidating the First and Second Provident Annuities. (Pl.’s Ex. 258 at NAT 001193, 001291-001325, Doc. 455-16 at 1-36.)
19
As of November 29, 2002, this money was placed in the following funds: the United States Government bond fund, the fixed income fund, the diversified bond fund, the growth fund, the diversified equity fund, the small cap value fund, and the small cap growth fund. (Pl.’s Ex. 560 at NAT 00979, Doc. 494-3 at 16.)
20
The
*523
fixed income fund was held as part of Provident’s general account. (Pl.’s Ex. 258 at NAT 01303, Doc. 455-16 .at 13.) The fixed income fund was an interest bearing investment that promised a guaranteed rate of return and thus was not subject to market volatility or fluctuations associated with stock or bond funds.
(IcL; see
PL’s Ex. 560 at NAT 00980, Doc. 494-3 at 17.) The other sub-funds were separate accounts segregated from all other assets of Provident.
(Id.
at NAT 01307, Doc. 455-16 at 17.) As with the First and Second Provident Annuities, the values of the separate accounts could increase or decrease with investment experience and were not guaranteed.
(Id.
at NAT 01291, Doc. 455-16 at 1.) For each separate account, Provident would determine how to invest the assets contained therein.
(Id.
at NAT 01307, Doc. 455-16 at 17.)
ASCO and JJJA are listed as the brokers for the Third Provident Annuity and received commissions as a result of the Board purchasing it. (JJJA, John J. Joyce and William J. Joyce’s Mem. of Law at 2, Doc. 425 at 8;
see also
PL’s Ex. 38 at Urban 00732, Doc. 454-6 at 1.)
21
On June 6, 2000, Makowski and Pizano, on behalf of the Board, purchased
■&
fourth group annuity from Provident (the “Fourth Provident Annuity”). (PL’s Ex. 259 at NAT 001194, 001326-1369, Doc. 455-17 at 1-45; PL’s Ex. 189 at ASCO 035128-035131, Doc. 491-3 at 64-67.)
22
The Fourth Provident Annuity committed approximately twenty-three million additional dollars ($23,000,000) of Fund assets. (PL’s Ex. 94 at NAT 01177, Doc. 488-4 at 63.) As of November 29, 2002, the approximately twenty-three million dollars ($23,-000,000) was invested in the following sub-funds: the United States Government bond fund, the fixed income fund, the value equity fund, and a deposit account. (PL’s Ex. 560 at NAT 00980, Doc. 494-3 at 17.)
23
The deposit account was an interest-bearing account that was part of Provident’s general corporate account. (PL’s Ex. 259 at NAT 01337, Doc. 455-17 at 12.) The principal of the deposit account plus the interest credited to such account were guaranteed by Provident.
(Id.)
The fixed income fund, as well as the other sub-fund separate accounts, were the same as was
*524
described with regard to the other Provident annuities.
The Fourth Provident Annuity was not approved at a public meeting by a majority of the Board. In fact, Urban, a Board member at the time, did not even know that the Fourth Provident Annuity had been purchased. (Stephen Urban Dep. 14:18-15:21, June 10, 2005, Doc. 435-16 at 5.) ASCO and JJJA were the licensed representatives on the Fourth Provident Annuity and received commissions as a result of the Board purchasing it.
{See
Pl.’s Ex. 259 at NAT 001194, Doc. 455-17 at 45.)
Makowski and Pizano received political contributions, in the two hundred fifty dollar ($250) to five hundred dollar ($500) range, from William Joyce, Jeffrey Hugo, John Joyce, Joseph Joyce, Jr., Joseph Perfilio and Donald Williamson in the year prior to purchasing the Fourth Provident Annuity. (Pl.’s Ex. 44 at MPCJ 00814, 00817, 00827, 00829, 00833, Doc. 487-4 at 54-62.) All of these campaign contributions were disclosed in campaign finance reports filed with Luzerne County and the Commonwealth of Pennsylvania’s Bureau of Commissions, Elections and Legislation.
{See id.
at MPCJ 00807, Doc. 487-4 at 54.)
Over the life of the four (4) Provident annuities, John Joyce and JJJA were paid approximately one million six hundred ninety-eight thousand four hundred dollars ($1,698,400) in commissions. (Pl.’s Ex. 32 at NAT 001160-01167, Doc. 487-2 at 15-22; Pl.’s Ex. 92 at NAT 01168-01172, Doc. 488-4 at 54-58; PL’s Ex. 93 at NAT 01173-01176, Doc. 488-4 at 59-62; PL’s Ex. 94 at NAT 01177-01179, Doc. 488^ at 63-65.) Williamson and ASCO were paid approximately two million one hundred forty-nine thousand three hundred dollars ($2,149,300) in commissions. (PL’s Ex. 32 at NAT 001160-01167, Doc. 487-2 at 15-22; PL’s Ex. 92 at NAT 01168-01172, Doc. 488-4 at 54-58; PL’s Ex. 93 at NAT 01173-01176, Doc. 488-4 at 59-62; PL’s Ex. 94 at NAT 01177-01179, Doc. 488-4 at 63-65.)
Plaintiff contends that the four (4) Provident annuities imposed extremely high contract charges on the Fund. (PL’s Br. in Opp’n at 25, Doc. 484-1 at 42.) Moreover, the contract charges were not the only fees imposed by Provident.
{Id.)
Rather, “[f]or those parts of the [Fundj’s assets that were invested in the Provident contracts’ equity options, the investment manager appointed by Provident to handle the [Fundj’s assets in those accounts charged management fees.”
{Id.
(citing PL’s Ex. 91 at NAT 00022, Doc. 488-4 at 37).) In addition, the Provident annuities all provided that, in the event of early, non-benefit withdrawals, significant expense recovery charges would be imposed.
{Id.)
G. The Manulife Annuity Contracts
On October 5, 1994, Crossin and Tirpak, on behalf of the Board, entered into an “Ultraflex Group Annuity Contract” with Manufacturers Life Insurance Company (U.S.A.) (“Manulife”) (the “First Manulife Annuity Contract”). (PL’s Ex. 45 at Manulife 00891-00892, Doc. 488-2 at 1-2.)
24
Morreale signed the First Manulife Annuity Contract as a witness to the agreement.
25
{Id.
at Manulife 00892, Doc. 488-2 at 2.) Williamson also signed the agreement as the Fund’s “pension consultant.”
{Id.)
The First Manulife Annuity Contract authorized Manulife to accept written fi
*525
nancial and administrative direction from Tirpak and Williamson.
(Id.)
Five million dollars ($5,000,000) of the Fund’s assets would be deposited with Manulife.
(Id.
at Manulife 00891, Doc. 488-2 at 1.) In addition to the five million dollar ($5,000,000) initial deposit, four hundred thousand dollars ($400,000) would be invested in yearly recurring deposits.
(Id.
at Manulife 00892, Doc. 488-2 at 2.) Five million dollars ($5,000,000) was wire transferred to Manulife in December of 1994.
(See
Pl.’s Ex. 466 at Manulife 00594, Doc. 494-3 at 7.)
The First Manulife Annuity Contract was an unallocated non-participating group annuity contract. (Pl.’s Ex. 45 at Manulife 00895, Doc. 488-2 at 5.) Initially, half of the Fund’s money was placed in a five (5) year guaranteed fund which promised a guaranteed compound interest rate. (Pl.’s Ex. 466 at Manulife 00594, Doc. 494-3 at 7.) The other two million five hundred thousand dollars ($2,500,000) was split equally among five (5) pooled funds which did not guarantee a rate of return.
(Id.; see
PL’s Ex. 45 at Manulife 00891, Doc. 488-2 at 1.) These pooled funds included a high-quality bond fund, an income fund, a growth opportunities fund, a diversified capital fund and a high-yield fund. (PL’s Ex. 45 at Manulife 00891, Doc. 488-2 at 1.)
26
The Fund’s assets which were placed in the guaranteed fund were held by Manulife with its general funds.
(Id.
at Manulife 00913, Doc. 488-2 at 23.) The pooled funds were separate accounts and the Fund’s assets which were placed in the pooled funds were segregated from Manulife’s other assets.
(Id.
at Manulife 00916, Doc. 488-2 at 26.) The value of the investments in Manulife’s pooled funds could increase or decrease to reflect the investment experience of that particular fund.
(Id.
at Manulife 00893, Doc. 488-2 at 3.) Manulife did not guarantee these values.
(Id.)
Williamson and Joseph Joyce, Sr. served as insurance brokers for Manulife and derived commissions from the sale of the First Manulife Annuity Contract. (PL’s Ex. 47 at Manulife 00954-00956, Doc. 488-3 at 1-3.) Gary Housman, a Manulife employee, served as the sales representative. (PL’s Ex. 459 at Manulife 00957, Doc. 494-2 at 24.)
On July 19, 1995, Housman contributed two hundred dollars ($200) to the Committee to Elect Crossin/Makowski. (PL’s Ex. 37 at MPCJ 01220, Doc. 487-4 at 12.) On May 17, 1999, Housman contributed five hundred dollars ($500) to the Committee to Elect Makowski and Pizano. (PL’s Ex. 40 at MPCJ 00620, Doc. 487-4 at 29.) On August 16, 1999, Housman contributed another two hundred dollars ($200) to the Committee to Elect Makowski and Pizano. (PL’s Ex. 41 at MPCJ 00497, Doc. 487-4 at 40.) All of these contributions were disclosed in campaign finance reports.
Plaintiff contends that these contributions were made in order to secure Manulife’s position as a Fund money manager, as well as to receive additional Fund assets to invest and manage. (PL’s Br. in Opp’n at 29, Doc. 484-1 at 46.)
On May 19, 1995, two (2) months before Housman made his first political contribution, one million dollars ($1,000,000) of
*526
Fund assets, six hundred thousand dollars ($600,000) more than the four hundred thousand dollar ($400,000) yearly recurring deposits called for by the First Manulife Annuity Contract, was deposited with Manulife. (Pl.’s Ex. 469 at Manulife 00585-00587, Doc. 494-3 at 3-5.)
27
Tirpak, not Crossin or Makowski, signed the remittance notice.
(Id.
at Manulife 00586, Doc. 494-3 at 4.)
On October 2, 1995, five (5) months after Housman’s first campaign contribution, an additional three million dollars ($3,000,000) was wire transferred to Manulife as a result of the Board terminating and liquidating the QPA-2 annuity held with Safeco. (Pl.’s Ex. 374 at Safeco 00012, Doc. 493-4 at 3.)
28
This money was also placed in the First Manulife Annuity Contract.
(Id.)
29
Tirpak and Crossin signed the remittance notice. (PL’s Ex. 471 at Manulife 00580, Doc. 494-3 at 2.)
As of December 31, 1998, twelve million three hundred sixty-eight thousand seven hundred fifty-one dollars ($12,368,751) was invested in the First Manulife Annuity Contract. (Manulife 01133, Doc. 497-2 at 53.) Three million seven hundred eleven thousand eighty-five dollars ($3,711,085) was invested in a five (5) year compound interest bearing guaranteed account.
(Id.)
Eight million six hundred fifty-seven thousand six hundred sixty-five dollars ($8,657,-665) was invested in non-guaranteed, separate, pooled funds.
(Id.)
On July 26, 2000, eleven million eight hundred ten thousand nine hundred and two dollars ($11,810,902) was withdrawn from the First Manulife Annuity and transferred to the Fourth Provident Annuity. (PL’s Ex. 485 at Manulife 00434, Doc. 494-3 at 9; Manulife 00449-00451, Doc. 497-2 at 28-30.) This effectively liquidated all of the separate accounts held by the Fund. (Manulife 00449, Doc. 497-2 at 28.) On October 5, 2001, the First Manulife Annuity was terminated when four million two hundred fifty-nine thousand six hundred forty dollars ($4,259,640) was withdrawn from a five (5) year compound interest bearing guaranteed account.
(See
Manulife 00973, Doc. 497-2 at 34; PL’s Br. in Opp’n at 102 n. 27.)
On March 10, 1999, Crossin and Makowski, on behalf of the Board, entered into an “Ultraflex Plus Group Annuity Contract” with Manulife (the “Second Manulife Annuity Contract”). (PL’s Ex. 49 at Manulife 00001-00002, Doc. 488-3 at 12-13.)
30
This annuity contract gave Manulife thirteen million dollars ($13,000,000) of the Fund’s assets to invest and manage, as well as annual, recurring deposits of five hundred thousand dollars ($500,000).
(Id.
at Manu
*527
life 00001, Doc. 488-3 at 12.) Williamson signed the Second Manulife Annuity Contract as a witness to the agreement, as well as in his capacity as the Board’s pension consultant.
(Id.
at Manulife 00002, Doc. 488-3 at 13.)
As of October 28, 2002, the Second Manulife Annuity Contract was valued at nine million two hundred fifty thousand three hundred twenty dollars ($9,250,320). (Pl.’s Ex. 530 at Manulife 00054, Doc. 494-3 at 34.) All of this money was placed in Manulife’s non-guaranteed pooled funds held in separate accounts. (Id.)
31
Throughout the course of the two Manulife annuity contracts, ASCO was paid commissions totaling approximately one million one hundred ninety thousand three hundred dollars ($1,190,300). (PL’s Ex. 101 at Manulife 00978-00979, 01041-01042, 01125-01126, 01180-01181, 01228-01229, 01282-01283, 01321-1322, Doc. 488-4 at 69-82; PL’s Ex. 102 at Manulife 00156-00157, 00224-00226, 00263-00264, 00299-300, Doc. 488-4 at 83-91.) JJJA received approximately five hundred ninety thousand two hundred dollars ($590,200) in commission. (PL’s Ex. 101 at Manulife 00978-00979, 01041-01042, 01125-01126, 01180-01181, 01228-01229, 01282-01283, 01321-1322, Doc. 488-4 at 69-82.)
32
H. The FSI Bonds
In August 1994, Williamson invested Fund assets with First Security Investments, Inc. (“FSI”). (FSI 00001-00005, Doc. 495-4 at 21-25.) It appears that the Fund’s assets invested with FSI were used to purchase secured bonds offered in a private placement in February 1995.
(See
FSI 00006, Doc. 495-4 at 26.) Tirpak and Crossin signed documents connected with this investment.
(See, e.g.,
FSI 00004, Doc. 495^1 at 24.) In March 1995, Stephen Alinikoff, a stockbroker for FSI, made a one thousand dollar ($1,000) contribution to the Committee to Elect Crossin/Makowski. (LCRB 032542, Doc. 496-5 at 32.)
I. The Wells Agreement
In early 1999, at Williamson’s recommendation, ten million dollars ($10,000,000) of Fund assets, in deposits of one million dollars ($1,000,000) and nine million dollars ($9,000,000), were invested with Wells Real Estate Funds, Inc. (“Wells”), a real estate investment trust (the “Wells Agreement”). (PL’s Ex. 25 at LCRB 00012-00014, Doc. 487-2 at 6-8; PL’s Ex. 26 at LCRB 00015-00017, Doc. 487-2 at 9-11; Williamson
*528
Dep. 439:16, Doc. 435-19 at 45; Crossin Dep. 277:10-288:25, Doc. 434-10 at 13-15.) The Wells Agreement was signed by Makowski and Crossin. (Pl.’s Ex. 25 at LCRB 00013, Doc. 487-2 at 7; PL’s Ex. 26 at LCRB 00016, Doc. 487-2 at 10.) Makowski, Crossin and Jones signed the form acknowledging receipt of the prospectus. (PL’s Ex. 25 at LCRB 00014, Doc. 487-2 at 8; PL’s Ex. 26 at LCRB 00017, Doc. 487-2 at 11.) FSC served as broker/dealer for both deposits. (PL’s Ex. 25 at LCRB 00013, Doc. 487-2 at 7; PL’s Ex. 26 at LCRB 00016, Doc. 487-2 at 10.) As FSC representatives, Michael Joyce and Perfilio shared a seven percent (7%) commission, or seventy thousand dollars ($70,000) on the first one million dollar ($1,000,000) deposit. (PL’s Ex. 25 at LCRB 00013, Doc. 487-2 at 7.) Williamson, also an FSC representative, received the commission on the second nine million dollar ($9,000,000) deposit. (PL’s Ex. 26 at LCRB 00016, Doc. 487-2 at 10; Williamson Dep. 332:7-333:14, Doc. 435-19 at 18.)
33
J. Rochdale
On March 10, 1999, Makowski, Crossin and Jones, on behalf of the Board, entered into a portfolio monitoring agreement with FSC, appointing Rochdale Investment Management, Inc. (“Rochdale”) as third party investment manager and investing one million one hundred thousand dollars ($1,100,000). (ASCO 035831-035835, Doc. 495-3 at 1-5.) As an FSC representative, Williamson collected commission on this investment.
34
(ASCO 035831, Doc. 495-3 at 1;
see
Williamson Dep. 327:18-332:21, Doc. 435-19 at 17-18.)
35
K. LPL
On July 27, 1999, Michael Hirthler, a registered representative of Linsco Private Ledger Corp. (“LPL”) made a two hundred fifty dollar ($250) campaign contribution to the Committee to Elect Makowski and Pizano. (PL’s Ex. 41 at MPCJ 00484, Doc. 487-4 at 38.) Less than one (1) month later, on August 20, 1999, Crossin, Makowski and Jones invested one million five hundred thousand dollars ($1,500,000) of the Fund’s money with LPL. (PL’s Ex. 85 at LCRB 00059-00060, Doc. 488-4 at 16-17.)
36
Six (6) weeks later, on October
*529
4, 1999, Hirthler made a second campaign contribution to the Committee to Elect Makowski and Pizano, this time in the amount of one thousand five hundred dollars ($1,500). (Pl.’s Ex. 41 at MPCJ 00542, Doc. 487-4 at 48.)
L. The Fund’s Accountants — Snyder & Clemente
Snyder
&
Clemente performed accounting services for the. Fund from the mid-1980s until 2002. (Martin Flaherty Dep. 14:22-15:3; 102:11-13, June 27, 2005, Doc. 434-12 at 5, 27.) Each year Snyder & Clemente prepared what is called a “compilation” so that the Fund’s actuary, the Hay Group, could prepare an actuarial valuation of the Fund. (Flaherty Dep. 14:1-5, Doc. 434-12 at 5.) “A compilation is receiving information from management, basically reading it over and putting it in the form of financial statements .... ” (Raymond G. Zavada Dep. 15:21-16:1, June 15, 2005, Doc. 435-22 at 5;
see
Flaherty Dep. 16:23-6, Doc. 434-12 at 5 (“The compilation is basically compiling statements from the books and records of the plan.... We merely gather information”).) Snyder & Clemente compiled these financial statements from information received from ASCO and, sometimes, the investment managers themselves. (Flaherty Dep. 17:7-20, Doc. 434-12 at 5.) Specifically, Snyder & Clemente would start with an investment manager’s account statement, look at the transactions that occurred during the year, and then follow the money from one bank statement to another. (Flaherty Dep. 58:18-59:21, Doc. 434-12 at 16.)
Snyder & Clemente was able to obtain all of the documentation needed to prepare the compilation. (Flaherty Dep. 18:8-10, Doc. 434-12 at 6.) Neither ASCO nor any investment manager gave Snyder & Clemente any problems when asked to turn over documents. (Flaherty Dep. 22:19-21, Doc. 434-12 at 7.) In preparing the compilations, Snyder & Clemente created spreadsheets disclosing the investment managers and the investment management fees charged to the Fund by each manager. (Flaherty Dep. 93:1-24, Doc. 434-12 at 24; Raymond G. Zavada Dep. 72:24-73:15, June 15, 2005, Doc. 435-22 at 19;
see, e.g.,
Def.’s Ex. 129 at SC 001745, Doc. 444-8 at 1.) These spreadsheets were available to Board members. (Flaherty Dep. 56:1-11, Doc. 434-12 at 15.)
M. The Fund’s Auditors — Zavada & Associates
Zavada & Associates has been the Fund’s auditor since the 1980s. (Zavada Dep. 14:2-9, Doc. 435-22 at 5.) “An audit is a verification process whereby an independent party, an accounting firm, reviews backup documentation, policies and procedures, and renders an opinion that the financial statements are fairly presented in accordance with generally accepted accounting principles.” (Zavada Dep. 15:7-15, Doc. 435-22 at 6.) “An audit includes examining on a test basis evidence supporting the amounts and disclosures on the
*530
financial statements.” (Zavada Dep. 113:8-14, Doc. 435-22 at 29.)
The audit was performed after both Snyder
&
Clemente performed the compilation and the Hay Group issued its actuarial report.
(See
Zavada Dep. 50:7-12, Doc. 435-22 at 14.) Indeed, the starting point for Zavada
&
Associates was Snyder
&
Clemente’s compilation. (Zavada Dep. 46:9-18, Doc. 435-22 at 13.) Zavada & Associates also received a copy of the Hay Group’s actuarial report. (Zavada Dep. 47:22-48:3, Doc. 435-22 at 13.) Both were necessary items to completing the audit. (Zavada Dep. 56:6-9, Doc. 435-22 at 15.)
After receiving the compilation and actuarial report, Zavada
&
Associates would then send requests to various investment managers to confirm much of the information. (Zavada Dep. 46:15-18, Doc. 435-22 at 13.) Importantly, the spreadsheets prepared by Snyder
&
Clemente, those disclosing the investment managers and the investment management fees charged to the Fund by each manager, were confirmed by Zavada & Associates. (Zavada Dep. 74:6-9, Doc. 435-22 at 20.)
Zavada
&
Associates also received information and account statements from ASCO, and, prior to ASCO taking over as administrative agent for the Fund, from Plaintiff. (Zavada Dep. 57:3-58:18, Doc. 435-22 at 15-16.) Specifically, Zavada
&
Associates received from ASCO “[information on investments. Pretty much any, any investment that they managed, there would be all the monthly statements and all the detail on the transactions in those accounts that were maintained at ASCO.” (Zavada Dep. 58:12-18, Doc. 435-22 at 16.)
Also, every year Zavada & Associates would receive a statement of account from Provident related to the annuities held by the Fund. (Zavada Dep. 65:24-66:8, Doc. 435-22 at 18;
see
Def.’s Ex. 133 at ZAV0550-0573, Doc. 444-12 at 1-23;
see also
Def.’s Ex. 138 at ZAY1305, Doc. 444-17 at 1; Def.’s Ex. 139 at ZAV1273, Doc. 444-8 at 1.) These statements of account displayed the commissions and fees related to the Provident annuities, as well as the fact that JJJA was receiving a portion of them.
(See, e.g.,
Def.’s Ex. 133 at ZAV 0550, Doc. 444-12 at 1.) These statements of account also disclosed the administrative fees charged to the Fund.
(See id.)
Zavada
&
Associates’ audit reports included, among other things, charts displaying the Fund’s expenses by type.
(See, e.g.,
Def.’s Ex. 128 at ZAV 5448, Doc. 444-7 at 13.) These charts covered the Fund’s expenses for the previous ten (10) year period.
(See id.)
One of the columns of expenses is entitled “Administrative/Miscellaneous.”
(See id.)
The audit reports also contain charts displaying the additions and deductions from the Fund’s assets for the year.
(See id.
at ZAV 5449, Doc. 444-7 at 14.) One of the rows in the addition part of the chart is entitled “Less investment expense.”
(See id.)
A row listing deductions is entitled “Administrative expense.”
(See id.)
N. The Fund’s Actuaries — The Hay Group
The Hay Group has performed actuarial services for the Fund since the late 1970s. (Norman Pickering Dep. 37:3-12, Sept. 14, 2005, Doc. 435-6 at 10.) In fact, the Hay Group performed actuarial valuations for sixty (60) of the sixty-seven (67) counties in Pennsylvania. (Pickering Dep. 92:21-93:3, Doc. 435-6 at 24.) Specific to the Fund, the Hay Group prepared a report on the financial actuarial position of the Fund— that is, essentially, answering the question of whether the Fund will have enough assets to pay out retirement and other benefits to Fund members in the future. If a shortfall is predicted, Luzerne County must contribute taxpayer money to make up the difference. (Pickering Dep. 68:2-7,
*531
Doc. 435-6 at 18;
see
Def.’s Ex. 35 at LCRB 08580, Doc. 439-14 at 4.) For the years 1987 through 2001, Luzerne County was not required to make any monetary contribution to the Fund. (Def.’s Ex. 94 at LCRB 07516, Doc. 442-24 at 9; Def.’s Ex. 91 at ZAY3409, Doc. 442-21 at 23; Pickering Dep. 68:2-69:4, Doc. 435-6 at 18.)
Most of the financial information the Hay Group used to prepare the actuarial report was provided by Plaintiff itself, its secretary and/or controller. (Pickering Dep. 46:11-47:10, Doc. 435-6 at 13.) Snyder
&
Clemente also supplied the Hay Group with financial statements needed to prepare the actuarial report. (Pickering Dep. 46:19-17:8, Doc. 435-6 at 13.)
The actuarial reports prepared by the Hay Group disclosed, among other things, the total amount charged to the Fund for administrative and investment management expenses.
(See, e.g.,
Def.’s Ex. 91 at ZAV 3391, Doc. 442-21 at 6.) The actuarial reports also contained charts explaining how the Fund’s assets were allocated among different types of investments— cash, stocks, bonds, real estate, etc.
(See, e.g.,
Def.’s Ex. 92 at Urban 01158, Doe. 442-22 at 7.)
O. ASCO’s Annual Reports
Each year, from 1989 through 2002, ASCO prepared a financial report concerning the Fund for Plaintiff. (Michael Morreale Dep. 152:6-0, June 14, 2005, Doc. 435 at 39; Flood Dep. 266:6-14, Doc. 434-13 at 68.) Financial reports for the years 1989 through 1992, 1994 through 1996, and 1999 through 2002 are included in the summary judgment record.
37
ASCO’s reports appear to be fairly comprehensive, sometimes including copies of Snyder & Clemente’s compilation and the Hay Group’s actuarial valuation.
(See
Pl.’s Ex. 110 at LCRB 00874-00928, Doc. 491-2 at 1-55.) Relevant to the instant motions is the fact that ASCO’s reports disclosed each of the Fund’s investment managers, the amount and style of the investments, as well as the total amount of administrative and investment management expenses charged to the Fund by the investment managers.
(See, e.g.,
PL’s Ex. 110 at LCRB 00879, 00889-00890, Doc. 491-2 at 6, 16-17.) ASCO’s reports also disclosed the return experienced by the Fund, including returns from prior years, and sometimes the returns delivered by each particular investment manager.
(See, e.g.,
PL’s Ex. 108 at LCRB 00813, 00815, Doc. 488-5 at 128,130.)
P. The Retirement Office
Lois Conrad was coordinator of the Retirement Office from 1982 until 1993. (Lois Conrad Dep. 19:11-22:21, 434-6 at 6-
*532
7.)
38
The Retirement Office was tasked with the job of maintaining the Fund’s books and records, giving advice to and preparing benefits quotes for prospective retirees, paying benefits, as well as other administrative functions. (Conrad Dep. 32:14-24, 54:19-55:19, Doc. 434-6 at 9, 15; Kammerer Dep. 17:19-24, Doc. 434-18 at 5; Pl.’s Ex. 123 at LCRB 00590-00593, Doc. 491-3 at 28-31.) Conrad testified that, after the Board went to the multiple manager system proposed by Williamson/ASCO, the Retirement Office routinely received account statements sent every month by the various money managers. (Conrad Dep. 31:2-32:24, Doc. 434-6 at 9.) Conrad recalls Safeco having sent account statements to the Retirement Office, which she had then filed. (Conrad Dep. 33:12-34:5, Doc. 434-6 at 9-10.) Conrad also recalled that ASCO sent monthly statements to the Retirement Office explaining the performance of the Fund’s investments. (Conrad Dep. 63:7-21, Doc. 434-6 at 17.) ASCO also sent annual reports to the Retirement Office every year. (Conrad Dep. 64:18-65:6, Doc. 434-6 at 17.) Conrad testified that she would look over the account statements, use them to compile monthly balance sheets and yearly financial reports of the Fund’s assets and liabilities, income and expenses
(see
Def.’s Ex. 110 at LCRB 00663, Doc. 443-16 at 1 (1988 financial report disclosing the Fund’s four (4) investment managers, including Safeco and the QPA-2)), and then store them in a locked filing cabinet. (Conrad Dep. 32:14-24, 54:19-55:19, Doc. 434-6 at 9, 15.) Conrad stated that she prepared financial reports every year she was coordinator of the Retirement Office. (Conrad Dep. 55:10-14, Doc. 434-6 at 15.)
Conrad testified that she would file account statements based on certain criteria — which money manager, which period of time the statement covered, etc. (Conrad Dep. 33:2-34:3, Doc. 434-6 at 9-10.) Conrad stated that she never discarded any of the account statements. (Conrad Dep. 34:5-8, Doc. 434-6 at 10.) Conrad also testified that Board members received copies of the money manager account statements. (Conrad Dep. 34:16-22, Doc. 434-6 at 10.)
In 1991, Lois Kammerer joined the Retirement Office as a bookkeeper. (Conrad Dep. 39:5-17, Doc. 434-6 at 11.) Conrad testified that Kammerer was an employee in whom she had absolutely no confidence. (Conrad Dep. 39:17-40:9, Doc. 434-6 at 11.) Conrad stated “I couldn’t get anywhere with that woman who was supposed to help me, and she just did her own thing.” (Conrad Dep. 42:20-24, Doc. 434-6 at 12.)
In the fall of 1993, Conrad either resigned as coordinator of the Retirement Office (Conrad Dep. 41:6-42:24, Doc. 434-6 at 11-12; Kammerer Dep. 16:23, Doc. 434-18 at 5), or her position was eliminated due to the consolidation of the Retirement Office and the Office of Employee Benefits (Def.’s Ex. 26 at LCRB 00576, Doc. 439-7 at 3). Either way, in the fall of 1993, Kammerer took over for Conrad as head of the Retirement Office. (Kammerer Dep. 14:12-17:17, Doc. 434-18 at 5.) Kammerer served in that capacity until 2001.
(Id.)
While running the Retirement Office, Kammerer received financial statements from ASCO and investment managers reflecting the Fund’s investment performance.
(See, e.g.,
Def.’s Ex. 156 at LCRB 18741, Doc. 445-10 at 1; Kammerer Dep. 94:8-24, 97:21-3, 104:9-13, 119:11-15, Doc. 434-18 at 25, 27, 31.) Kammerer also
*533
stated that ASCO sent the Retirement Office monthly spreadsheets regarding the performance of the Fund’s investments. (Kammerer Dep. 146:7-148:5, Doc. 434-18 at 38.) Kammerer did not read these documents. (Kammerer Dep. 93:16-19, Doc. 434-18 at 24.) Kammerer stated that she placed the financial documents she received in filing cabinets in the Retirement Office alphabetically according to which investment manager sent them. (Kammerer Dep. 104:5-24, Doc. 434-18 at 27.) Kammerer also sometimes gave copies of financial statements to Board members. (Kammerer Dep. 148:18-21, Doc. 434-8 at 38.) Kammerer stated that financial statements and other investment-related documentation was mailed to the Retirement Office throughout her tenure there. (Kammerer Dep. 149:1-3, Doc. 434-18 at 38.) Kammerer stated that she changed Conrad’s policy of keeping documents for “years and years and years,” instead discarding documents after roughly seven (7) years. (Kammerer Dep. 98:20-101:2, Doc. 434-18 at 26-27.)
Both Conrad and Kammerer testified that they dealt with the Hay Group on a daily basis. (Conrad Dep. 37:1-6, Doc. 434-6 at 10; Kammerer Dep. 18:16-19:15, Doc. 434-18 at 6.)
In 2001, the Retirement Office, which had, in 1993, been consolidated with the Office of Employee Benefits, and, in 2000, partially outsourced to ASCO, was completely outsourced to ASCO. (Kammerer Dep. 29:1-7, Doc. 434-18 at 8.) ASCO thus was tasked with the jobs of maintaining the books and records of the Fund, providing retirement quotes to prospective retirees, processing benefits payments, counseling prospective retirees and recent retirees, and other administrative functions.
(See
PL’s Ex. 123 at LCRB 00590-00593, Doc. 491-3 at 28-31;
see also
Conrad Dep. 32:14-24, 54:19-55:19, Doc. 434-6 at 9, 15; Kammerer Dep. 17:19-24, Doc. 434-18 at 5.) As a result, Kammerer lost her job as head of the Retirement Office. (Kammerer Dep. 29:5-7, Doc. 434-18 at 8.)
Q. The Annual Meetings
On at least two (2) occasions, the Board held annual meetings with the investment managers, the accountants, auditors and actuaries to discuss the Fund. (Conrad Dep. 74:19-75:11, Doc. 434-6 at 20; Kammerer Dep. 149:6-9, Doc. 434-18 at 38; Morreale Dep. 22:13-24:20, Doc. 435 at 7; Frank Crossin Dep. 48:4-16, Doc. 434-9 at 13.) These meetings would be luncheons at area hotels. (Conrad Dep. 75:16-21, Doc. 434-6 at 20; Morreale Dep. 22:13-23:7, Doc. 435 at 7.) Norm Pickering from the Hay Group, Williamson from ASCO, as well as some of the investment managers were present. (Kammerer Dep. 150:1-12, 154:3-5, Doc. 434-18 at 39-40; Morreale Dep. 24:2-32:14, Doc. 435 at 7-9.) Williamson/ASCO handed out booklets that listed the money managers and explained the progress of the Fund’s investments. (Kammerer Dep. 154:13-21, Doc. 434-18 at 40;
see
Morreale Dep. 32:9-10, Doc. 435 at 9.)
R. Alleged Concealment of the Scheme
Notwithstanding the apparently extensive accounting, auditing and actuarial services performed by Snyder
&
Clemente, Zavada & Associates, and the Hay Group, not to mention ASCO, Plaintiff contends that the putative pay-to-play scheme was deliberately concealed from other members of the Board, as well as the public, in at least two ways. (PL’s Br. in Opp’n at 34, Doc. 484-1 at 51.) First, Plaintiff contends that those Board members who did not participate in the scheme did not know that the Joyces were to share in the commissions Williamson/ASCO received on Fund investments. (PL’s Br. in Opp’n at 11, Doc. 484-1 at 28.) Second, Plaintiff
*534
argues that ASCO’s role as administrative agent for the Fund facilitated the concealment of the scheme.
(See id.
at 19, Doc. 484^1 at 36.) By directing that all documentation be directed to ASCO, rather than to the Board, members such as Morreale, Flood and Urban, whom Plaintiff avers did not participate in the scheme, were kept in the dark.
(See id.
at 17, Doc. 484-1 at 34.) Plaintiff also asserts that the commissions, fees and recovery expense charges related to the investment contracts were not disclosed to it.
The Court notes two important points. First, Plaintiff does not, and could not, dispute the fact that all campaign contributions made to Makowski, Pizano, Crossin and Jones were publicly disclosed in campaign finance reports.
(See
Pl.’s Br. in Opp’n at 73, Doc. 484-1 at 90.) Second, Plaintiff does not contend, and there is no evidence, that any Defendant concealed or altered any documents which were given to Plaintiffs accountants, auditors and actuaries for their review in performing services for the Fund.
(See
Pl.’s Br. in Opp’n at 71-72, Doc. 484-1 at 88-89.)
S. Urban and Flood Elected; Investigation Commences
In November 1999, Stephen Urban was elected Luzerne County Commissioner, defeating Jones. (Stephen Urban Dep. 245:11-13, June 10, 2005, Doc. 435-16 at 62.) Stephen Flood became Luzerne County Controller in 2002.
(See
Stephen Flood Dep. 40:14-17; 51:16-18, Doc. 434-13 at 11,14.) According to Flood, when he assumed office, he was asked by employees and some retirees to review the Fund to make sure that they were receiving the highest rate of return on the Fund’s assets. (Flood Dep. 53:2-6, Doc. 434-13 at 14.)
In March 2002, Flood hired Glynis Koehler, a certified public accountant, to help him investigate the Fund. (Glynis Koehler Dep. 28:3-4; 31:9-12, June 8, 2005, Doc. 434-19 at 8-9; Flood Dep. 50:12-19, Doc. 434-13 at 14.)
39
Flood and Koehler “gathered from various warehouses or commissioners’ offices or the controller’s office every record that [they] could come upon.” (Flood Dep. 51:2-6, Doc. 434-13 at 14.) Most of the records Flood and Koehler reviewed during their investigation were found in public storage. (Flood Dep. 51:12-52:20, Doc. 434-13 at 14.) Others were obtained from Snyder & Clemente, Zavada & Associates, ASCO and Provident. (Koehler Dep. 26:3-30:12, 180:23-184:8, Doc. 434-19 at 8-9, 46-47.)
40
In addition to financial information, Flood and Koehler also reviewed the minutes of all of the board meetings over the fourteen (14) year period.
(See
Def.’s Ex. 151 at LCRB 14293, Doc. 445-6 at 2.)
As a result of their investigation, Flood and Koehler concluded that: (1) the Sunshine Act had been violated;
41
(2) the County Pension Plan Best Practices had been violated;
42
and (3) the Defendant
*535
former Board members Makowski, Crossin, Pizano and Jones had breached their fiduciary duties as trustees of the Fund.
43
(See
Koehler Dep. 13:7-16, Doc. 434-19 at 4; Flood Dep. 28:23-50:1, Doc. 434-13 at 8-14.)
At the height of the alleged scheme, August 2002, the retirement fund’s assets were split among nineteen (19) investment managers and twenty-nine (29) separate portfolios. (LCRB 14292, Doc. 496-4 at 44.)
As of 2003, when this action commenced, two thousand sixty-three (2,063) Luzerne County employees were making contributions into the Fund. (Def.’s Ex. 95 at ZAV2095, Doc. 443 at 8.) Eight hundred seventeen (817) retirees received benefits from the Fund at that time.
(Id.)
As of December 31, 2003, the Fund’s net assets held in trust for pension benefits totaled one hundred sixty-six million, five hundred fifty-seven thousand two hundred thirty-six dollars ($166,557,236).
(Id.
at ZAV2094, Doc. 443 at 7.) The Fund’s 2003 value was down from the highwater mark it reached at the end of 1999, prior to the 2001 recession, when the Fund was valued at two hundred three million four hundred ninety-six thousand seven hundred eighty dollars ($203,496,780). (Def.’s Ex. 51 at NAT 01135, Doc. 441 at 4.)
T. The Board Terminates ASCO as Consultant and Administrative Agent
1. The September 5, 2002 Board Meeting
On September 5, 2002, a regular meeting of the Board, which consisted of Luzerne County Commissioners Thomas Pizano, Thomas Makowski, and Stephen Urban, Luzerne County Controller Stephen Flood, and Luzerne County Treasurer Michael Morreale, was held. (Def.’s Ex. 33 at FLOOD 5196, Doc. 439-12 at 1.) Pizano presided over the meeting.
(Id.)
All members of the Board were present.
(Id.)
The minutes of the meeting follow:
Commissioner Thomas Pizano requested that the Refunds of Contribution and Interest, Purchase of Military Service, and Purchase of Leave of Absence be read first. Controller Stephen Flood objected stating as the Retirement Board Secretary he is in charge of the agenda for the meeting and the order in which the motions are read[.] Commissioner Pizano then asked the opinion of Solicitor James Blaum, who stated the Chairman conduces] the meeting and how the agenda should be handled. Mr. Flood stated that Mr. Blaum was not the Solicitor for the Retirement Board and could not provide an opinion. After Commissioner Pizano refused to consider the proposals he stated the meeting was adjourned and both he and Commissioner Makowski left the meeting. However, because the Board did not vote to adjourn the meeting, the three remaining members, a quorum, continued the session of the Retirement Board.
(Id.)
With Pizano and Makowski gone, Flood moved the terminate ASCO as the Fund’s investment consultant and administrative agent.
(Id.)
Morreale seconded the motion.
(Id.)
Flood, Morreale, and Urban,
*536
who was the third remaining Board member, unanimously voted to terminate the contract the Board had with Williamson and ASCO. Flood then moved to hire Merrill Lynch as the Fund’s investment advis- or.
(Id.
at FLOOD 5197, Doc. 439-12 at 2.) Morreale seconded this motion.
(Id.)
Flood, Morreale and Urban then unanimously voted to hire Merrill Lynch as investment advisor.
(Id.)
Ironically, these Board members did not request bids from other financial advisors.
(See
Def.’s Ex. 34 at FLOOD 5191, Doc. 439-13 at 1.) To avoid any conflict of interest, Flood, Morreale and Urban terminated Merrill Lynch as one of the Fund’s money managers. (Def.’s Ex. 33 at FLOOD 5197, Doc. 439-12 at 2.) Flood, Morreale and Urban voted to hire Mockenhaupt Benefits Group to replace ASCO as administrator of the Fund.
(Id.)
Flood, Morreale and Urban, acting as the Board, then passed resolutions consistent with the aforementioned votes.
(Id.
at FLOOD 5200-5201, Doc. 439-12 at 5-6.)
Flood, Morreale and Urban then engaged in an open discussion about the Fund and its management.
(Id.
at FLOOD 5199, Doc. 439-12 at 4.)
Controller Stephen Flood began by stating that there has been a bleeding of the fund for the past nine years. He stated that the fund was valued at $165 million in January and $142 million today. He explained that the taxpayers would have to contribute as much as $1 million or $2 million next year to keep the plan solvent. Mr. Flood stated that the value of the fund dropped from $203 million at the start of 2000 to its current worth of approximately $142 million. He also explained that the fund was paying out $40,000 a week to an estimated 46 money managers. Commissioner Urban stated that they would be reducing by half the amount of fees paid to these money managers, saving nearly $1 million and lessening the burden on taxpayers for this shortfall of the fund.
Judd Shoval then asked the Board why they hired Merrill Lynch without seeking proposals from interested advisers and presenting them at an advance public hearing. Both Mr. Flood and Commissioner Urban then pointed out that since 1993 there has been no public meeting to hire money managers!.] They stated that it would take six to eight months to issue a request for proposals] and receive and calculate the responses and that the County is in need of an advisor immediately.
(Id.)
2. The September 17, 2002 Board Meeting
A Board meeting was then held on September 17, 2002. (Def.’s Ex. 34 at FLOOD 5191, Doc. 439-13 at 1.) Pizano, Urban, Flood and Morreale attended.
(Id.)
Makowski was unable to attend because he was accompanying his wife to a previously scheduled doctor’s appointment.
(Id.)
After the meeting was called to order, public comment was received on the Board’s decision to fire ASCO and hire Merrill Lynch as the Fund’s investment advisor.
(Id.
at FLOOD 5191-5192, Doc. 439-13 at 1-2.) An excerpt from the Board minutes follows.
Tom Lazur, director of the UFCW Local 1776, which represents 300 workers at Valley Crest Nursing Home asked the Board why Merrill Lynch was hired and no requests for proposals were put out[.] The majority of the Board defended the hiring of Merrill Lynch without RFPs stating that the fund was dwindling and there was no current financial advisor. Mr. Lazur then stated that he felt the comments made in the newspaper about the union leaders were out of line and that he was informed by
*537
county officials during -contract negotiations and was satisfied with the fund[’]s performance and its ability to operate without a county subsidy. He also pointed out that Merrill Lynch was one of the county’s money managers that had lost millions of dollars. Mr. Lazur then recommended that the majority set up an advisory committee for any union to provide their input and protect their members. Ellen Bush (from Smith Barney and one of the present money managers under ASCO) was then identified by Mr. Lazur as a friend who would do an evaluation of the fund free of charge. Mr. Flood then showed management agreements, letters, consent forms, and contract acceptance forms from Don Williamson only signed by Commissioner Makowski with no reference to any other Retirement Board member. He also showed certain certifications that were only signed by a portion of the Board. Attorney Hasseyt, Solicitor for the Board,] was then asked to comment on the procedures the Board must follow as to these agreements and contracts. He responded by saying the Board has to serve as a trustee and oversee the fund and the majority of the vote for everything must be brought before the Board and voted. Commissioner Pizano then stated that he was not consulted about the meeting Merrill Lynch was holding ... on October 3, 2002 and would not be able to attend because it was his daughter’s birthday. Mr. Flood responded that Merrill Lynch scheduled the meeting and that it was the only day available to accommodate that many people. After others complained that Commissioner Pizano would not be able to attend, Ray Crisci of Merrill Lynch stated that they would conduct three sessions that day at 1, 4 and 7 p.m. to make it convenient for people to attend. Alan Pugh, 9-1-1 Deputy Director then questioned the Board [as to] why they didn’t seek out proposals before hiring Merrill Lynch and Mockenhaupt Benefits Group. Mr. Flood then stated that other companies were verbally contacted. Joseph Perfilio of ASCO then spoke stating that it was the Board’s responsibility to make sure that all Board members were aware of current happenings and that it was not the consultant’s role[J He then asked ... if the Board was going to interview every money manager. Mr. Flood responded YES, by saying that the Board will be working long into the night doing interviews.
(Id.
at FLOOD 5191-5192, Doc. 439-13 at 1-2.)
44
After public comment, Pizano requested a motion to rescind the firing of ASCO as investment consultant and administrative agent for the Fund.
(Id.
at FLOOD 5192, Doc. 439-13 at 2;
see
Def.’s Ex. 35 at LCRB 08577-08578, Doc. 439-14 at 1-2.) Pizano also requested that the hiring of Merrill Lynch be rescinded.
(Id.)
These motions failed for lack of a second.
(Id.)
3. The October 1, 2002 Board Meeting
At the October 1, 2002 meeting of the Board, which all Board members attended, a representative from the Mockenhaupt Benefits Group, which had been hired by Flood, Morreale and Urban as the administrative agent for the Fund, informed the Board that it would not be feasible to have a local representative. (Def.’s Ex. 35 at LCRB 08582-08583, Doc. 439-14 at 6-7.) Because there would be no local presence for retirees, Morreale requested a motion,
*538
which was unanimously approved, to receive proposals from local companies, including ASCO, to handle the administrative duties of the Fund.
(Id.
at LCRB 08583, Doc. 439-14 at 7.)
Also, Urban requested a motion, which was unanimously approved, to make the payment of fifteen thousand dollars ($15,-000) to ASCO for administrative and retirement office managerial services rendered for the third quarter of 2002.'
(Id.
at LCRB 08578, Doc. 439-14 at 2.)
Later during the meeting, Norm Pickering, from the Hay Group, presented the Board with the findings of the actuarial valuation that the Hay Group performed.
(See id.
at LCRB 08580, Doc. 439-14 at 4.) Pickering stated' that Luzerne County would have to contribute three hundred thirteen thousand, six hundred forty-nine dollars ($313,649) to the Fund for 2002.
(Id.)
This was the first year in more than a decade in which the County was required to make a contribution to the Fund.
(See
Def.’s Ex. 259 at ML 004838, Doc. 448-21 at 5.) In addition, this contribution was far less than that paid by other counties of similar size in Pennsylvania for 2002.
(See id.)
Pickering also estimated that the County would have to contribute nearly five million dollars ($5,000,000) for 2003. (Def.’s Ex. 35 at LCRB 08580, Doc. 439-14 at 4.)
Finally, Merrill Lynch, which had been previously appointed investment consultant, gave a presentation concerning future money managers of the Fund.
(Id.)
Plaintiff then selected several investment firms to interview.
(Id.
at LCRB 08580-08582, Doc. 439-14 at 4-6.)
It should also be noted that, during public comment, an employee of ASCO requested that Plaintiff provide ASCO with copies of the minutes and/or audiotapes from the previous four (4) meetings.
(Id.
at LCRB 08577, Doc. 439-14 at 1.) Flood agreed to do so.
(Id.)
U. The Board Liquidates the Fund’s Investments
On October 15, 2002, the Board held a meeting. (Def.’s Ex. 36 at FLOOD 2428, Doc. 440 at 1.) Pizano, Flood, Urban and Morreale attended.
(Id.)
Makowski was absent.
(Id.)
At the meeting, Flood moved to terminate eighteen (18) money managers.
45
(Id.
at FLOOD 2429, Doc. 440 at 2.) Pizano raised the issue of the amount of the fees and penalties the Fund would have to pay in order to liquidate all of these accounts.
(Id.
at FLOOD 2429-2430, Doc. 440 at 2-3.) Ray Crisci, of Merrill Lynch, “explained that it would depend on the negotiations with the money managers.... [TJhere would definitely be fees associated with Manulife Financial and Provident Mutual.”
(Id.
at FLOOD 2430, Doc. 440 at 3.) Notwithstanding the risk of paying fees and penalties, nor knowing their actual cost, Flood, Morreale and Urban voted to terminate the money managers and liquidate the Fund’s accounts.
(Id.)
Pizano voted against termination and liquidation.
(Id.)
At the meeting, Flood also moved to revoke Williamson’s standing authorization
*539
to make disbursements and withdrawals.
(Id.)
Morreale seconded this motion.
(Id.)
Flood, Morreale and Urban then voted in favor of the revocation.
(Id.)
Pizano abstained.
(Id.)
On October 18, 2002, Flood wrote a letter to Gary McMahan, President of Nationwide Provident, informing him that all of the Fund’s contracts with Provident, with the exception of the First Provident Annuity, were entered into in violation of Pennsylvania law, as they were not approved at public meetings by a majority vote, nor were the contracts signed by the minimum number of Board members. (LCRB 13802-13803, Doc. 496-4 at 35-36.) Flood also stated that ASCO, a Provident broker/dealer, was “currently under investigation for potential illegal practices.” (LCRB 13803, Doc. 496-4 at 36.) Consequently, Flood, on behalf of the Board, formally requested that the Third and Fourth Provident Annuities be liquidated. (LCRB 13802, Doc. 496-4 at 35.) Urban and Morreale also signed this letter. (LCRB 13803, Doc. 496-4 at 36.)
Flood wrote a similar letter to Chris Britt, of Manulife, informing him that, in the opinion of Plaintiff, the Manulife annuity contracts were entered into in violation of Pennsylvania law. (Manulife 00043-00044, Doc. 496-5 at 39-40.) Flood requested that the Manulife annuity contracts be liquidated immediately and without penalty. (Manulife 00043, Doc. 496-5 at 39.) Urban and Morreale signed this letter. (Manulife 00044, Doc. 496-5 at 40.) Manulife refused to agree to waive the termination fees, and charged the Fund for terminating its investments. (Manulife 00050, Doc. 496-5 at 42.)
Similar letters were written to other investment managers which the Board voted to be terminated.
(See, e.g.,
Def.’s Ex. 258 at 004872-004874, Doc. 448-20 at 1-3.) Flood, Urban and Morreale signed these letters.
(See id.)
V. Solicitor Hassey’s Letters
On September 12, 2002, Raymond Hassey, Solicitor to the Board, sent a memorandum to the Board reminding them of their fiduciary responsibilities to the Fund and advising them that “each time you liquidate an account, in order to transfer monies to another fund, you are incurring transfer charges, transaction fees and, in some cases, penalties for early withdrawal.” (Def.’s Ex. 171 at NAT 01105, Doc. 445-21 at 2.) “[I]f money is to be relocated from one source to another, and no substantial benefit is to be realized, then you should reconsider reallocating these funds in order to avoid the generation of unnecessary expenses and transaction fees, which would likely be substantial .... ” (/&) Nevertheless, the Board terminated eighteen (18) of the Fund’s money managers.
In October 2002, Hassey wrote two (2) more letters to the Board. (Def.’s Ex. 175 at NAT 01096, Doc. 445-25 at 1; Def.’s Ex. 176 at LUZPRIV 0001-0002, Doc. 445-26 at 1-2.) In the first letter, Hassey took issue with the Board for firing the Fund’s money managers and liquidating the Fund’s accounts without having consulted a securities attorney. (Def.’s Ex. 175 at NAT 01096, Doc. 445-25 at 1.)
Thereafter, on October 30, 2002, Hassey wrote a letter formally notifying the Board of his intention to resign as Solicitor to the Board, effective immediately. (Def.’s Ex. 176 at LUZPRIV 0001, Doc. 445-26 at 1.) Essentially, Hassey criticized the Board’s most recent decisions, calling them politically motivated and not in the best interests of the Fund.
(Id.)
The full contents of Hassey’s letter is set forth in the margin.
46
*540
W. Schnader, Harrison’s Investigation
In January 2003, the Board retained the law firm of Schnader, Harrison, Segal & Lewis LLP (“Schnader, Harrison”) to investigate the Board’s management of the Fund for the period of January 1, 1988 through December 31, 2002.
(See
Def.’s Ex. 153 at LCRB 17798, Doc. 445-7 at 3.) Flood, Urban and Morreale authorized the investigation.
(Id.
at LCRB 17796, Doc. 445-7 at 1.) The method for conducting the investigation was to gather information about the activities of the Board, examine relevant legal principles, and assess whether the Board had properly exercised its fiduciary duties in managing the Fund’s assets.
(Id.
at LCRB 17799, Doc. 445-7 at 4.) Schnader, Harrison issued a preliminary report (the “Flood Report”) explaining the results of its investigation in May 2003.
(Id.
LCRB 17796-17818, Doc. 445-7 at 1-23.)
Schnader, Harrison attorneys came to view at least two areas of concern.
(Id.
at LCRB 17800, Doc. 445-7 at 5.)
First, the Board’s conduct of its traditional investment management and advisory roles, especially its relationship with ASCO. In 1988, the Board retained ASCO to be the [Fund]’s pension management consultant, ostensibly to advise the Board in drafting investment plans, determining asset allocations, and retaining investment managers. In addition, ASCO was to perform periodic performance reviews. In 1999, the Board entered into an additional agreement with ASCO under which ASCO would perform the daily administration and operation of the [Fund], However, both of the [Fund]’s agreements with ASCO are ambiguous and contradictory, and in our view more than likely present a conflict of interest and a violation of fiduciary obligations. These probable violations appear to have been exacerbated by the fact that ASCO and its affiliates made
*541
numerous political contributions to certain members of the Board over this period of time.
Second, the Board’s overall management and oversight of the [Fund], which again appears to have violated fiduciary standards.
(Id.
at LCRB 17800-17801, Doc. 445-7 at 5-6.) The Flood Report detailed a variety of alleged improprieties, including, among other things: (1) deviation by ASCO from the consulting services agreement; (2) investment of Fund assets in improper investment vehicles; (3) Williamson’s qualifications and failure to register as an investment adviser; (4) violation of the County Pension Plans Best Practices; (5) violation by ASCO of the Investment Advisers Act; (6) receipt of campaign contributions from ASCO and many of the investment managers; and (7) breaches of fiduciary obligations.
(Id.
at LCRB 17801-17818, Doc. 445-7 at 6-23.) Schnader, Harrison concluded the Flood Report by stating:
It appears at the very least that ASCO was not a qualified investment adviser, engaged in self-dealings and conflicts of interest. The Board either knew or should have known about it in 1988, yet, until recently, did nothing about it, perhaps due to the political contributions that the then majority Board members received from ASCO and others, and therefore a strong argument can be made that the former Board, ASCO and others breached their fiduciary duties to the [Fund] and its beneficiaries.
(Id.
at LCRB 17818, Doc. 445-7 at 23.)
X. The County Sues the Board
In April 2003, Luzerne County filed an action against the Board in state court seeking to enjoin the Board from paying Schnader, Harrison’s legal fees.
County of Luzerne,
882 A.2d at 533 . The Court of Common Pleas, Luzerne County, denied injunctive relief, concluding that Schnader, Harrison’s estimated legal fee, which was only forty-five thousand dollars ($45,000) for the investigation that resulted in the Flood Report, would not actuarially impair the Fund.
Id.
Thereafter, in May 2003, the Board, or,, more specifically, Flood, Urban and Morreale, authorized Schnader, Harrison to continue its investigation into the Fund.
(See
Def.’s Ex. 43 at Flood 5108, Doc. 440-8 at 4.) In the fall of 2003, Schnader, Harrison was formally retained to prosecute a lawsuit on behalf of the Board against Defendants to recoup lost monies and excessive fees.
(See
Def.’s Ex. 45 at Flood 5065, Doc. 440-10 at 7; Defi’s Ex. 149, Doc. 445-4 at 1-2.) This action was filed in October 2003.
(See
Doc. 1.)
Then, in December 2003, upon learning that the legal fees associated with the investigation and filing of a lawsuit in federal court would cost the Fund at least four hundred thousand dollars ($400,000), with the entire litigation potentially costing as much as four million dollars ($4,000,000), the County again sought to enjoin the Board from paying any legal fees to Schnader, Harrison.
County of Luzerne,
882 A.2d at 533 . This time, the Court of Common Pleas, Luzerne County, agreed with the County that these costs would actuarially impair the Fund and granted the injunction.
Id.
The Commonwealth Court of Pennsylvania reversed, concluding that the Fund would not be actuarially impaired if these legal fees were incurred.
Id.
at 535 . Accordingly, the Board was allowed to continue to pay Schnader, Harrison to prosecute this action.
II. Procedural History
A. The Complaint
On October 9, 2003, Plaintiffs Stephen L. Flood, the Luzerne County Controller, and the Luzerne County Retirement Board (“Board”), on behalf of the Luzerne County Employee Retirement System,
*542
filed a ninety-eight (98) page Complaint. (Doc. 1.) Therein, Plaintiffs set forth eight (8) claims against twenty-six (26) Defendants.
(Id.)
In Count I, Plaintiffs alleged that Defendants Makowski, Pizano, Crossin, Jones, ASCO and Donald Williamson breached their fiduciary duty that was owed to Plaintiffs. (Compl. ¶¶ 169-177, Doc. 1 at 53-59.) In Count II, Plaintiffs alleged that Defendants Nationwide, Manulife, Wells, Wells Investment Securities, Wells REIT, FSC, FSI, LPL, Safeco, Devonshire, Perfilio, Joyce Associates, JJI, JJJA, JJ & B, Joseph Joyce, William Joyce, Michael Joyce, John Joyce and Maria Williamson aided and abetted the breach of fiduciary duty committed by Makowski, Pizano, Crossin, Jones, ASCO and Donald Williamson.
(Id.
¶¶ 178-181, Doc. 1 at 59-61.) In Counts III, IV, V and VI, Plaintiffs set forth claims against all Defendants pursuant to the civil remedy provision of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1964 (c).
(Id.
¶¶ 182-217, Doc. 1 at 62-92.)
47
In Count VII, Plaintiffs alleged that ASCO and Donald Williamson had violated the Investment Advisors Act of 1940, 15 U.S.C. § 80b-l
et seq.
(“LAA”).
(Id.
¶¶ 218-231, Doc. 1 at 92-95.) Finally, in Count VIII, Plaintiffs set forth a claim of unjust enrichment against ASCO, Donald Williamson, FSC, FSI, LPL, Manulife, Nationwide, Wells, Wells REIT, Wells Investment Securities, Perfilio, JJI, JJJA, Joseph Joyce, Michael Joyce and John Joyce.
(Id.
¶¶ 232-237, Doc. 1 at 95-96.)
B. The Motions to Dismiss the Complaint
Nearly all of the original Defendants filed motions to dismiss (Docs. 46, 91, 93, 95, 96, 98, 100, 104 and 108.) In a Memorandum and Order, dated August 24, 2004, 2004 WL 1908221 , the Court granted these motions in part and denied them in part. (Doc. 181.) Specifically, the Court: (1) dismissed Count II (aiding and abetting breach of fiduciary duty) against all Defendants except LPL; (2) dismissed Count III (conducting a RICO enterprise in violation of 18 U.S.C. § 1962 (c)) against all Defendants except Makowski, Pizano, Crossin, Jones, ASCO, Donald Williamson, Maria Williamson, JJJA, JJ & B, Joseph Joyce, Manulife, Nationwide and LPL; (3) dismissed Count IV (conspiring to conduct a RICO enterprise in violation of 18 U.S.C. § 1962 (d)) against Joyce Associates; (4) dismissed Count V (acquiring or maintaining an interest or control of a RICO enterprise in violation of 18 U.S.C. § 1962 (b)) against all Defendants except LPL; and (5) dismissed Count VI (conspiring to acquire or maintain an interest or control of a RICO enterprise in violation of 18 U.S.C. § 1962 (d)) against Joyce Associates. (Doc. 181 at 72-76.)
C. Counterclaims and Crossclaims
Thereafter, the remaining Defendants filed their answers, counterclaims and crossclaims. Specifically, ASCO, Donald Williamson, Maria Williamson, Perfilio, Michael Joyce and Devonshire filed counterclaims against Flood and the Board for contribution and indemnification, and against Flood only for intentional interference with contractual relations. (Doc. 201.) ASCO, Donald Williamson, Maria Williamson, Perfilio and Michael Joyce also filed a third-party complaint against Morreale, Merrill Lynch
&
Co., Pierce Fenner
&
Smith Incorporated, Bender Crisci Sennett & Hudacek Group, Raymond L. Crisci, Rodney F. Sennett, Stephen L. Hudacek, Peter M. Butera, William H. Bender and Gary T. Crisci, setting forth claims for contribution, indemnifica
*543
tion and intentional interference with contractual relations. (Doc. 212.)
Makowski, Pizano, Crossin and Jones filed a counterclaim against the Board for indemnification. (Doc. 203.) Makowski, Pizano, Crossin and Jones also filed third-party claims against Morreale for breach of fiduciary duty, indemnification and contribution. (Doc. 206.)
D. Stipulations of Dismissal
Since then, several parties have settled their disputes. Stipulations of dismissal have been entered in favor of Wells, Wells REIT, and Wells Investment Securities (Doc. 224), LPL (Doc. 227), FSC (Docs. 342, 343), Joseph Joyce, Jr. (Doc. 356), JJI (Doc. 357), Michael Joyce (Doc. 378), Maria Williamson (Doc. 382), JJ
&
B (Doc. 383) and Devonshire (Doc. 384). The Board has also settled with FSI and Rochdale. (Pl.’s Br. in Opp’n at 33, Doc. 484-1 at 50.)
E. The Motions to Dismiss the Counterclaims and Crossclaims
In addition, in a Memorandum and Order, dated April 6, 2004, the Court dismissed the counterclaim against Flood for intentional interference with contractual relations brought by ASCO, Donald Williamson, Maria Williamson, Perfilio, Michael Joyce and Devonshire. (Doc. 308.)
Also, in a Memorandum and Order dated April 8, 2005, the Court dismissed certain third-party claims brought against Morreale. (Doc. 310.) The indemnity claim brought by Makowski, Pizano, Crossin and Jones was dismissed.
(Id.)
The intentional interference with contractual relations claim raised by ASCO, Donald Williamson, Maria Williamson, Perfilio and Michael Joyce was dismissed as well.
(Id.)
In a Memorandum and Order, dated June 22, 2005, 2005 WL 1501442 , the Court dismissed the third-party complaint brought by ASCO, Donald Williamson, Maria Williamson, Perfilio and Michael Joyce (Doc. 212) as it related to Merrill Lynch & Co., Pierce Fenner & Smith Incorporated, Bender Crisci Sennett
&
Hudacek Group, Raymond L. Crisci, Rodney F.Sennett, Stephen L. Hudacek, Peter M. Butera, William H. Bender and Gary T. Crisci. (Doc. 336.)
F. Flood Dropped as a Plaintiff
Flood’s term as Luzerne County Controller ended on December 31, 2005. (Doc. 344.) Consequently, on January 4, 2006, pursuant to Rule 21 of the Federal Rules of Civil Procedure, Fed. R. Crv. P. 21, Flood was dropped as a plaintiff in this action. (Doc. 345.) Flood remains in the case as a counterclaim defendant. The Board is now the lone plaintiff.
G. The Instant Motions for Summary Judgment
In October 2006, Defendants Nationwide, Manulife, Makowski, Pizano, Crossin, and Jones, JJJA, John Joyce and William Joyce, Safeco, Donald Williamson and ASCO, and Perfilio filed motions for summary judgment as to Plaintiffs Complaint. (Docs. 390, 391, 414, 419, 420, 426 and 427.) Third-party Defendant Morreale filed motions for summary judgment as to the third-party complaints filed against him by Defendants Makowski, Pizano, Crossin and Jones and Defendants Donald Williamson, ASCO and Perfilio. (Docs. 400, 406.) Flood filed a motion for summary judgment as to Defendants Donald Williamson, ASCO and Perfilio’s counterclaims against him. (Doc. 403.) The Board also filed a motion for summary judgment as to Defendants Donald Williamson, ASCO and Perfilio’s counterclaims brought against it. (Doc. 409.) These motions have been fully briefed and are now ripe for disposition.
48
*544
LEGAL STANDARD
Summary judgment is appropriate if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Crv. P. 56(c). A fact is material if proof of its existence or nonexistence might affect the outcome of the suit under the applicable substantive law.
See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 , 106 S.Ct. 2505 , 91 L.Ed.2d 202 (1986),
Where there is no material fact in dispute, the moving party need only establish that it is entitled to judgment as a matter of law. Where, however, there is a disputed issue of material fact, summary judgment is appropriate only if the factual dispute is not a genuine one.
See id.
at 248 , 106 S.Ct. 2505 . An issue of material fact is genuine if “a reasonable jury could return a verdict for the nonmoving party.”
Id.
Where there is a material fact in dispute, the moving party has the initial burden of proving that: (1) there is no genuine issue of material fact; and (2) the moving party is entitled to judgment as a matter of law.
See
10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil 2D § 2727 (2d ed. 1983). The moving party may present its own evidence or, where the nonmoving party has the burden of proof, simply point out to the Court that “the nonmoving party has failed to make a sufficient showing of an essential element of her case.”
Celotex Corp. v. Catrett,
477 U.S. 317, 323 , 106 S.Ct. 2548 , 91 L.Ed.2d 265 (1986).
All doubts as to the existence of a genuine issue of material fact must be resolved against the moving party, and the entire record must be examined in the light most favorable to the nonmoving party.
See White v. Westinghouse Elec. Co.,
862 F.2d 56, 59 (3d Cir.1988). Once the moving party has satisfied its initial burden, the burden shifts to the nonmoving party to either present affirmative evidence supporting its version of the material facts or to refute the moving party’s contention that the facts entitle it to judgment as a matter of law.
See Anderson,
477 U.S. at 256-257 , 106 S.Ct. 2505 .
The Court need not accept mere conclusory allegations, whether they are made in the complaint or a sworn statement.
Lujan v. Nat’l Wildlife Fed’n,
497 U.S. 871, 888 , 110 S.Ct. 3177 , 111 L.Ed.2d 695 (1990). In deciding a motion for summary judgment, “the judge’s function is not himself to weigh the evidence and determine the truth of the matter but to determine
*545
whether there is a genuine issue for trial.”
Anderson,
477 U.S. at 249 , 106 S.Ct. 2505 .
DISCUSSION
I. Defendants’ Motions for Summary Judgment as to Plaintiffs Federal Claims
A. RICO Claims (Counts III, IV and VD
1. RICO — In General
“Congress passed RICO in an effort to combat organized, long-term criminal activity.”
Jennings v. Auto Meter Products, Inc.,
495 F.3d 466, 472 (7th Cir.2007). “Although § 1964(c) provides a private civil action to recover treble damages for violations of RICO’s substantive provisions, the statute was never intended to allow plaintiffs to turn garden-variety state law fraud claims into federal RICO actions.”
Id.
(internal and external citations omitted). In order to establish a violation of section 1962(c), a section upon which Plaintiff relies in Count III of its Complaint, a plaintiff must show the following elements by a preponderance of the evidence: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”
Sedima, S.P.R.L. v. Imrex Co., Inc.,
473 U.S. 479, 496 , 105 S.Ct. 3275 , 87 L.Ed.2d 346 (1985). A pattern of racketeering activity may be established by showing that at least two (2) predicate acts occurred within ten (10) years of each other. 18 U.S.C. § 1961 (5). “In order to curb ‘widespread attempts to turn routine commercial disputes into civil RICO actions,’ courts carefully scrutinize the pattern requirement to ‘forestall RICO’s use against isolated or sporadic criminal activity, and to prevent RICO from becoming a surrogate for garden-variety fraud actions properly brought under state law.’ ”
Jennings,
495 F.3d at 472-73 (internal and external citations omitted). The pattern requirement may be established through “the so-called ‘continuity plus relationship’ test: the predicate acts must be related to one another (the relationship prong) and pose a threat of continued criminal activity (the continuity prong).”
See H.J. Inc. v. Northwestern Bell Telephone Co.,
492 U.S. 229, 239 , 109 S.Ct. 2893 , 106 L.Ed.2d 195 (1989) (“RICO’s legislative history reveals Congress’ intent that to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering predicates are related,
and
that they amount to or pose a threat of continued criminal activity”) (emphasis in original).
2. Conducting and Participating in a RICO Enterprise (Count III)
In Count III, Plaintiff alleges that Defendants violated 18 U.S.C. § 1962 (c), which prohibits “any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate commerce or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.”
As mentioned above, Plaintiff must, at the least, show that two (2) predicate acts were committed within ten (10) years of each other. 18 U.S.C. § 1961 (5). Any crime enumerated in 18 U.S.C. § 1961 (1) may constitute a predicate act, including mail and wire fraud. 18 U.S.C. § 1961 (1)(B). Any crime which constitutes securities fraud is expressly excluded by the Private Securities Litigation Reform Act (“PSLRA”).
See
18 U.S.C. § 1964 (c). Although two (2) predicate acts are necessary to establish a pattern of racketeering activity, they are not necessarily sufficient.
H.J. Inc.,
492 U.S. at 237 , 109 S.Ct. 2893 . The predicate acts must be related and amount to or threaten to become continued criminal activity.
Id.
at 239 , 109 S.Ct. 2893 .
*546
Plaintiffs RICO claims rest on the theory that various Defendants committed predicate acts of mail and/or wire fraud. Mail and/or wire fraud occurs when there is: (1) a scheme to defraud; (2) use of the mails (for mail fraud) or interstate wire communications (for wire fraud) in furtherance of the scheme; and (3) fraudulent intent.
United States v.
Pharis, 298 F.3d 228, 233-34 (3d Cir.2002) (citing
United States v. Sturm,
671 F.2d 749, 751 (3d Cir.1982)). An additional issue is whether Plaintiffs RICO claims are barred by the PSLRA. This issue will be addressed first.
a. The PSLRA
Defendants contend that the PSLRA bars Plaintiffs RICO claims. Under the civil remedy provision of RICO, 18 U.S.C. § 1964 (c), “no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.” Thus, any conduct which is actionable as fraud in the purchase or sale of securities cannot constitute a predicate offense under RICO, whether or not the plaintiff alleges securities fraud.
Bald Eagle Area School District v. Keystone Financial, Inc.,
189 F.3d 321, 330 (3d Cir.1999). The threshold inquiry in this analysis, then, is whether the annuities purchased by the Fund from Safeco, Provident and Manulife constitute “securities” under the federal securities law.
i. Are the Annuities “Securities”?
(A) Statutory Background
Section 3(a)(8) of the Securities Act of 1933 (the “1933 Act”), 15 U.S.C. § 77a
et seq.,
exempts from its provisions “[a]ny insurance or endowment policy or annuity contract or optional contract issued by a corporation subject to the supervision of the appropriate insurance regulatory of any state.” 15 U.S.C. § 77c(a)(8). “Although the provisions of section 3 of the 1933 Act are generally viewed as providing exemptions from the registration requirements of the 1933 Act, but not from [the] anti-fraud provisions [of the Securities Exchange Act of 1934 (the “1934 Act”) ], the Securities and Exchange Commission (SEC) has unequivocally interpreted section 3(a)(8) to have been adopted by Congress in order to
exclude
from ‘security status’ those insurance contracts that come within section 3(a)(8).” Christopher S. Petito,
Variable Annuities & Variable Life Insurance Regulation,
Part I, Chapter 2, § 2:1.2 (Practising Law Institute, 2007) (citing Definition of ‘Annuity Contract or Optional Annuity Contract’, Securities Act. Rel. No. 6,558, 1984 WL 547110 (Nov. 21, 1984)). “Thus, the anti-fraud provisions of the federal securities laws do not apply to the offering of insurance products entitled to rely upon section 3(a)(8).”
Id.
“[T]his means that even the anti-fraud provisions of the [1934 Act] and rules thereunder do not apply to the offering of insurance contracts that come within section 3(a)(8) of the 1933 Act.”
Id.
(citing
Otto v. Variable Annuity Life Insurance Company (“Otto I”),
814 F.2d 1127, 1130 (7th Cir.1986) (upholding district court’s grant of summary judgment on 1934 Act claim where annuity contract was entitled to rely upon section 3(a)(8) exemption);
rev’d and remanded on reh’g (“Otto II”),
814 F.2d 1127, 1142 (7th Cir.1987) (reversing prior dismissal and remanding for consideration of 1934 Act claims based upon determination that section 3(a)(8) not available)).
(B) The Two Types of Annuities— Fixed versus Variable
“Any kind of annuity contract that existed in 1933 is covered by section 3(a)(8).” Petito,
supra,
at § 2:2.1. “These products have a rate of interest that is fixed for the life of the contract and may or may not be based upon a life eontingency[, which takes into account the annuitant’s mortality risk,
*547
that is, the risk that the annuitant will outlive his life expectancy].”
Id. (See
Pl.’s Br. in Opp’n at 102-103, Doc. 484-1 at 119-120.)
49
As such, a fixed annuity is properly considered a type of insurance and is exempt from both the registration and anti-fraud provisions of federal securities laws. Petito,
supra,
at § 2:1.2.
The chief characteristic of a variable annuity is a direct correlation between investments and the payouts to the annuitant.
Malone v. Addison Insurance Marketing, Inc.,
225 F.Supp.2d 743, 749 (W.D.Ky.2002). “Variable annuities ordinarily guarantee neither minimum contract values nor even any portion of premium payments.” Petito, supra, at § 2:2.4. “Rather, variable annuities offer returns tied directly to the performance of a mutual fund underlying a separate account, or a portfolio of securities held directly by the separate account.”
Id.
“The only assets of the insurer that support the value of a variable annuity are the securities held in the fund underlying a separate account or held directly by the separate account.”
Id.
“A variable annuitant thus assumes much greater risk than the holder of a fixed annuity who is provided with a guarantee. The holder of a variable annuity cannot look forward to a fixed monthly or yearly amount ... [i]t may be greater or less depending on the wisdom of the investment policy.’ ”
Malone,
225 F.Supp.2d at 749 (quoting
SEC v. Variable Annuity Life Insurance Company of America,
359 U.S. 65, 70 , 79 S.Ct. 618 , 3 L.Ed.2d 640 (1959)).
50
*548
(C) The Supreme Court Cases
In
SEC v. Variable Annuity Life Insurance Company of America (‘VALIC”),
the United States Supreme Court held that a variable annuity, pursuant to which the annuitant paid premiums which the company would invest, and, at an appointed date, would receive in return periodic payments in amounts dependent on the productivity of the company’s investments, was a “security” subject to federal securities laws, and was not “insurance,” thus limiting the reach of section 3(a)(8)’s exemption. 359 U.S. at 71-72 , 79 S.Ct. 618 . In so doing, the Court distinguished between a fixed annuity, which operates like insurance, and a variable annuity, which operates like a security.
Id. See also Malone,
225 F.Supp.2d at 748 (discussing
VALIC).
The Court explained:
[Fjixed annuities! ] offer! ] the annuitant specified and definite amounts beginning with a certain year of his or her life. The standards for investment of funds underlying these annuities have been conservative. The variable annuity introduced two new features. First, premiums collected are invested to a greater degree in common stocks and other equities. Second, benefit payments vary with the success of the investment policy.... The holder of a variable annuity cannot look forward to a fixed monthly or yearly amount in his advancing years. It may be greater or less, depending on the wisdom of the investment policy.... The difficulty is that, absent some guarantee of fixed income, the variable annuity places all the investment risks on the annuitant, none on the company. The holder gets only a pro rata share of what the portfolio of equity interests reflects-which may be a lot, a little, or nothing. ... [W]e conclude that the concept of “insurance” involves some investment risk-taking on the part of the company. The risk of mortality, assumed here, gives these variable annuities an aspect of insurance. Yet it is apparent, not real; superficial, not substantial. In hard reality the issuer of a variable annuity that has no element of a fixed return assumes no true risk in the insurance sense.... For in common understanding “insurance” involves a guarantee that at least some fraction of the benefits will be payable in fixed amounts. The companies that issue these annuities take the risk of failure. But they guarantee nothing to the an
*549
nuitant except an interest in a portfolio of common stocks or other equities .... There is no true underwriting of risks[.]
Id.
at 69-73, 79 S.Ct. 618 (internal citations and footnotes omitted). Thus, the Court held that the variable annuity at issue was a security and not insurance.
Id.
Several years later, in
SEC v. United Benefit Life Insurance Co.,
the Supreme Court clarified its decision in
VALIC
with regard to the difference between a fixed and variable annuity. 387 U.S. 202 , 87 S.Ct. 1557 , 18 L.Ed.2d 673 (1967).' In
United Benefit,
the “Flexible Fund Annuity” at issue was a deferred annuity under which the annuitant paid premiums to the company, which it then held in a separate account.
Id.
at 205 , 87 S.Ct. 1557 . The company invested these monies for the most part in common stocks.
Id.
The company did not promise to accumulate net premiums at a specified rate of interest.
Id.
at 208 , 87 S.Ct. 1557 . Rather, the annuitant was credited with a proportionate share of the total fund and could withdrawal all or part of this interest.
Id.
at 205 , 87 S.Ct. 1557 . The annuitant was also entitled to an alternative cash value measured as a percentage of his net premiums which gradually increased as the annuity approached its maturity date.
Id.
at 205 , 87 S.Ct. 1557 . At maturity, the purchaser could elect to receive the cash value of his policy, measured by either his interest in the “Flexible Fund” or by the net premium guarantee, which was one hundred percent (100%) of the investment, whichever was greater.
Id.
After maturity, the purchaser’s interest in the “Flexible Fund” terminated.
Id.
at 206 , 87 S.Ct. 1557 .
51
Thus, during the pre-maturity or so-called “accumulation” phase of the “Flexible Fund” contract, “[i]nstead of promising to the policyholder an accumulation to a fixed amount of savings at interest, the insurer promises to serve as an investment agency and allow the policyholder to share in its investment experience. The insurer is obligated to produce no more than the guaranteed minimum at maturity, and this amount is substantially less than that guaranteed by the same premiums in a conventional deferred annuity contract.”
Id.
at 208 , 87 S.Ct. 1557 . The “Flexible Fund” program thus “allow[ed] the purchaser to reap the benefits of a professional investment program,”
Id.
at 204 , 87 S.Ct. 1557 , while essentially providing a floor, in the form of the net premium guarantee, below which the purchaser’s investment could not fall.
Id.
at 205 , 87 S.Ct. 1557 .
The Court held that, during the prematurity accumulation phase, the “Flexible Fund” annuity was not entitled to section 3(a)(8)’s exemption because the annuitant had a direct interest in the fund’s performance, and thus bore the risk of the investment.
Id.
at 211 , 87 S.Ct. 1557 . “ ‘Flexible Fund’ arrangements ... appeal to the purchaser not on the usual insurance basis of stability and security but on the prospect of ‘growth’ through sound investment management. And while the guarantee of cash value based on net premiums reduces substantially the investment risk of the contract holder, the assumption of an investment risk cannot by itself create an insurance provision under the federal definition.”
Id.
“The basic difference between a contract which to some degree is insured and a contract of insurance must be reeog
*550
nized.”
Id.
Thus, the Court held that the accumulation phase of the “Flexible Fund” annuity did not fall within the exemption provided by section 3(a)(8).
Id.
The Court further held that it constituted an “investment contract” under federal securities laws.
Id.
at 211-12 , 87 S.Ct. 1557 . As such, the Court concluded that the accumulation phase of the “Flexible Fund” was a nonexempt security that must be registered with the SEC.
Id.
at 212 , 87 S.Ct. 1557 .
(D) Other Cases of Note
In
Gilmore v. MONY Life Insurance Company of America,
the MONY annuity contract at issue provided that the annuitant must make purchase payments to the issuer, which were then allocated, at the annuitant’s choice, to the guaranteed interest account and/or to variable subaccounts. 165 F.Supp.2d 1276, 1282 (M.D.Ala.2001). The guaranteed interest account was part of the issuer’s general account and purchase payments allocated to it earned an interest rate not less than three and one-half percent (3.5%).
Id.
at 1283 . The assets allocated to the variable subaccounts were kept separate from the issuer’s other assets and accounts.
Id.
at 1282 . Each of these subaccounts invested in, among other things, money market instruments, bonds and stocks.
Id.
The purchase payments allocated among the various subaccounts could increase or decrease in value depending on the investment experience of the subaccounts; there was no guarantee that the value of the purchase payments allocated to any of the subaccounts would increase or that the purchase payments made would not lose value.
Id.
The annuitant bore the entire investment risk for all monies placed in the variable subaccounts.
Id.
at 1282-83 .
The United States District Court for the Middle District of Alabama found that the MONY variable annuity at issue was similar to the Flexible Fund in
United Benefit,
in that it contained a portion — the subaccounts — which, like the accumulation portion of the Flexible Fund, placed all of the investment risk on the annuitant, and another portion — the guaranteed interest account — which, like the maturity portion of the Flexible Fund, offered the annuitant a fixed return.
Id.
at 1283 .
The court then analyzed the subaccounts separately, as the Supreme Court did with the accumulation phase of the Flexible Fund in
United Benefit. Id.
The court concluded that, because the value of the purchase payments placed in the subaccounts could increase or decrease and the annuitant bore the entire investment risk for all monies placed therein, the subaccounts were not exempt insurance, but rather were securities.
Id.
at 1283-84 . Essentially, the issuer “promised to serve as the annuitant’s investment agency, expressly allowing the annuitant to share in the subaccounts’ investment experience, be it good or bad.”
Id.
at 1283 .
In
Malone v. Addison Insurance Marketing, Inc.,
the annuity contract at issue was known as “The Ultimate Equity Index.” 225 F.Supp.2d 743, 746 (W.D.Ky.2002). The contract stated that the Ultimate Equity Index was a single-premium deferred annuity.
Id.
“In effect, the Index operated as an insurance plan with an investment aspect through which [the annuitant] purchased a contract backed by [the issuer].”
Id.
“Under the contract terms, [the issuer] guaranteed [the annuitant] a minimum return of 100 percent of her premium plus
at least
3 percent interest annually, depending on how the S
&
P 500 Index fared.”
Id.
(emphasis in original). “Specifically, [the issuer] agreed to pay [the annuitant] an annual interest credit based on a formula tied to the performance of the S & P 500 Index during the contract year.”
Id.
The issuer promised the annuitant that “she would always
*551
get at least a 3 percent return annually and was guaranteed more if the S & P 500 Index produced a higher rate of return. This amounted to a guarantee of 134 percent of her premium at the end of her ten-year contract term.”
Id.
at 746-47 .
The United States District Court for the Western District of Kentucky held that the Ultimate Equity Index was a fixed annuity.
Id.
at 751 . The court reasoned that the issuer guaranteed the annuitant a minimum three percent (3%) return, irrespective of the performance of the S & P 500 Index.
Id.
at 750-51 . As such, the issuer assumed the bulk of the investment risk, not the annuitant, who received a three percent (3%) interest payment regardless of how poorly the market performed.
Id.
at 750 . “If [the issuer] was unable to surpass [the S
&
P Index] in its own investment of the [annuitant’s] premium, then it was the loser.”
Id.
at 751 . Conversely, the only risk born by the annuitant was that, if she had chosen a different contract, her money might have been worth more than the one hundred thirty four percent (134%) at the end of the ten (10) year contract term.
Id.
The court also noted a structural difference between this annuity contract and variable annuities — the annuitant’s “benefit payments from [the issuer] were not directly dependent on the performance of investments made with her money. That is to say, ... [the annuitant’s] contract did not operate like a variable annuity: her payments were not a function of a personalized portfolio and her principal was not held in an independent account.”
Id.
Rather, the annuitant’s benefit payments were a function of the issuer’s own investment of the premium payments.
Id.
Consequently, the court held that the Ultimate Equity Index was a fixed annuity and therefore excluded from the definition of “security.”
Id.
(E) Analysis
Initially, the Court notes that it will limit its analysis to only those contracts for which Plaintiff still seeks damages — that is, those entered into with Safeco, Provident and Manulife.
(See
Pl.’s Br. in Opp’n at 34, 92 Doc. 484-1 at 51, 109.) In the opinion of the Court, all of the Safeco, Provident and Manulife annuities, except the QPA-2, are variable annuities not entitled to the exemption provided for by section 3(a)(8).
(1) The Safeco Annuities
The QPA-2 was a traditional fixed annuity with a guaranteed interest rate. (PL’s Ex. 358 at Safeco 00127, Doc. 456-3 at 1.) All deposits were held in Safeco’s general fund, not a separate account. (PL’s Ex. 360 at Safeco 00115, Doc. 456-4 at 2.) Safeco bore all of the risk as it had to meet minimum interest payments. As such, it falls within the exemption provided by section 3(a) (8), 15 U.S.C. § 77c(a)(8).
See Otto I,
814 F.2d at 1131-32 (holding that insurance instrument was fixed annuity exempt from securities regulation because the instrument provided a guaranteed return of four percent (4%)).
The Resource Variable Account A was an unallocated group variable annuity contract. (PL’s Ex. 361 at ASCO 000161, Doc. 456-5 at 4.) No rate of return was promised. Instead, the values provided by the Resource Variable Account A were based on the investment experience of a separate account and were therefore variable and not guaranteed. (Def.’s Ex. 320 at Safeco 00751, Doc. 451-14 at 1.) Consequently, the Fund, not Safeco bore all of the investment risk.
The Fund’s assets were placed in separate account sub-funds managed by Safeco. (Bartholomaus Dep. 225:5-6, Doc. 434-2 at 6.) Safeco, in turn, invested these monies in stocks and mutual funds. (Bartholo
*552
maus Dep. 224:24-225:22, Doc. 434-2 at 6.) As such, Safeco was acting as an investment agency and allowed the Fund to share in its investment experience.
While Plaintiff argues that the Resource Variable Account A was oftentimes sold in tandem with the QPA-2, these were separate contracts and, under
United Benefit,
are severable when undertaking an analysis as to whether the section 3(a)(8) exemption is available.
Accordingly, the Court concludes that the Resource Variable Account A was a variable annuity not entitled to the section 3(a)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2285927. Public record. Not legal advice.