Update from John C. McLemore, Trustee
Much to our amazement and despite the efforts we have made to identify and notify every 1Point employer/client of the filing of the bankruptcies, we are still getting phone calls and emails which begin, “I have heard there may be a problem with 1Point….”
Having been involved daily in the unscrambling of this financial train wreck for almost three months, we are beginning to get a good grasp of the scope of the problems.
There are no 401(k) funds remaining. In many cases, the securities, such as mutual funds, that were supposed to have been purchased with client money, were never purchased. Instead the money was diverted to pay debts of the company, to pay day to day operating expenses, to buy real estate, to buy Japanese woodblock prints and to be used in other inappropriate ways.
The news is no better for those who had Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs) and Health Revenue Accounts (HRAs). At the beginning of the case, the U. S. District Court froze all of 1Point’s bank accounts at AmSouth Bank. There were about 70 of them. With the exception of the company operating account, which the Court released to help pay the administrative costs of the Bankruptcy estates, those funds remain frozen. The total of all the funds in all the AmSouth accounts is about $900,000.00.
Although the accounts have been frozen, we have been able to look at the history of the accounts. Almost all of them were used to keep 1Point afloat and to make other inappropriate expenditures. Very little money can be traced to its rightful owner.
On November 17, 2006, U. S. District Court Judge John Nixon referred the cases that had been filed in his court to U. S. Bankruptcy Court Judge Keith Lundin. All of the cases spawned by the actions of Barry Stokes and the collapse of 1Point Solutions are being handled as one very large Bankruptcy. There are actually two Bankruptcy cases, one for 1Point and one for Barry Stokes. They are being jointly administered. All documents are to be filed in the 1Point Solutions, LLC case (BK Case # 06-05400-KL3-11).
Within the next 10 days, we will file a motion with the Bankruptcy Court seeking authority to release the funds in the frozen accounts to the Bankruptcy Estate and seeking the authority to return the small amount of money we can trace to its owners.
What do we mean when we say a bank account has been "compromised"?
The system for funding HSA, HRA and FSA accounts was simple. It began with payroll deduction. The employers in turn were to take the money withheld from their employee’s checks and send it direct to 1Point, which would keep track of the contributions by employees. The employee could then go to the doctor or pharmacy or child care provider and use those pretax funds for a prescribed purpose. This was done primarily with the debit cards issued by 1Point through MBI.
1Point through MBI advanced credit to the plan participants and waited on the money to arrive from the employer. When 1Point collapsed, some employers were a month behind on payments; some were even farther behind. The audit shows 1Point is owed more than $1 million from employers who were paying in arrears. The first collection letters are in the mail.
Barry Stokes, who is currently being held in the Nashville Metropolitan Jail awaiting trial on federal charges of theft from ERISA protected accounts, was the sole owner of 1Point Solutions, LLC. Civilly he is culpable. A suit to prevent his receiving a discharge in Bankruptcy is being drafted and we are confident will succeed.
Nonetheless, our office is asked everyday, “Did Barry do it alone?” Thus far we have not identified an accomplice. As our audit progresses, we will continue to look for others who may be civilly or criminally liable. We regularly share our work product with federal investigators. They work under rules that prohibit them from reciprocating. We do not know where their investigations may have taken them.
Are there no protections for me and my money in the system?
We learned quickly that many 1Point plan participants and even employer/clients thought the money held by 1Point was protected by something like the Federal Deposit Insurance Corporation or by private insurance or a bond. Unfortunately there is no insurance-like protection.
The handling of 401(k), HSA, FSA and other similar programs is governed by ERISA (Employee Retirement Income Security Act), a federal law that is just as complicated as the tax code or the Bankruptcy Code. One does not learn it overnight.
There may be safeguards written into ERISA which, during 1Point’s four years of operation, were violated by individuals or institutions. We feel it is our duty to investigate that possibility. Therefore, we have made application to the Bankruptcy Court to employ special ERISA counsel. Jeffrey B. Cohen is a partner in Ivins, Phillips & Barker of
Barry Stokes had a hobby. He was a serious collector of Japanese woodblock prints. Some of the money contributed to 1Point managed programs went to buy prints. It is our position the money that went into the collection was misappropriated from 1Point; therefore, the collection really belongs to 1Point. It consists of almost 2,200 prints, perhaps a half dozen books containing original prints and a small library of books on Japanese art. We found part of the collection in
Once we secured the collection, we went in search of an art broker that would agree to accept the entire collection on consignment for sale. The collection includes some very high quality prints, some high quality prints and many prints that are considered decorator quality. The major auction houses wanted the best items, but not the entire collection.
In addition the collection is so large and the international market for Japanese woodblock prints so small, the Trustee was warned repeatedly not to offer the entire collection in one auction. After a protracted search, the Trustee selected Bill Stein’s Floating World Gallery in
It is the broker’s plan to sell some of the prints at auction and some at private sale. The highest quality items will be offered directly to collectors known to be in the market for a particular artist or type of print. The second tier items will be offered at the JWPPA (Japanese Woodblock Print and Painting Auction) http://www.jwppa.com/ biannual sales. JWPPA is an online auction also owned by Bill Stein. The decorator quality items will be farmed out to third party galleries and auctions, including but not limited to an auction gallery in
What else is there?
We have already sold Barry Stokes’ home in Dickson for $135,600.00; his Japanese woodblock print storage house in Dickson for $53,200.00; his household goods for $40,521.00; a variety of automobiles for $34,200.00; a utility trailer for $2,450.00; and office equipment for $58,715.00. The sale total right now is $324,686.00.
There are two more vehicles in
As the audit continues, it is possible we will discover additional assets.
