A federal judge this week issued a temporary restraining order against a Sewickley man accused by the U.S. Department of Labor of embezzling millions of dollars from retirement funds that he and his company administer.
Authorities say at least $8 million could be missing and unrecoverable from 17 funds overseen by Paul Palguta, the president and CEO of RiversEdge Advanced Retirement Solutions.
The affected investments include retirement funds for civil servants in Beaver County, the St. Barnabas Health System, religious organizations and private employers.
Under the restraining order, Palguta and his company are prohibited from accessing assets from 17 retirement plans amid allegations that they embezzled money and generated false records to conceal asset transfers.
The government said it sought the order to “stop the bleeding.”
“An immediate freeze on the account of RiversEdge is needed to stop further dissipation of plan assets,” labor attorneys wrote in a filing in U.S. District Court in Pittsburgh. “At least $8 million in plan assets may be missing and unrecoverable.”
U.S. District Judge Marilyn Horan granted the order Monday and scheduled a hearing Wednesday for a permanent injunction.
In the meantime, the impacted plans have had their assets frozen, said Garen Fedeles, the solicitor for Beaver County, which had a plan administered by RiversEdge.
Fedeles said Wednesday that the county contracted the company in 2010 to administer a deferred compensation retirement plan.
As part of that plan, employees contributed pre-tax money to their accounts. About 80 current and 40 former employees are enrolled, Fedeles said.
Fedeles said the plan ought to have about $5 million in assets, but officials are not sure how much is there.
“That’s the million-dollar question,” he said. “We have not, at this point, received a number.”
Beaver County officials were alerted in mid-January to the Labor Department investigation and met with their employees on Jan. 19, Fedeles said.
Fedeles was told that the plan is frozen, which means no money can be withdrawn, reinvested or moved to another plan.
The potential misconduct came to light late last month when the Labor Department filed a federal complaint alleging misappropriation of retirement funds by RiversEdge.
According to the complaint, Palguta attempted to buy shares for the Beaver County plan on Oct. 27 but didn’t have cash available to do so.
Mid Atlantic Trust Company, which is a custodian of assets for approximately 90 of RiversEdge’s plans, contacted Palguta to alert him, and he said he would correct the problem, the complaint said.
On Nov. 14, Palguta notified the company that the situation had been corrected.
While Mid Atlantic then confirmed the Beaver County plan had the necessary cash, it also found the funds had been transferred that day, and that assets, totalling nearly $1.7 million had apparently been misappropriated from six other plans to fund it, the complaint said.
That transfer of assets, it continued, prompted Mid Atlantic to conduct an audit of RiversEdge accounts.
No criminal charges have been filed, but documents in the case assert that an investigation is pending.
On Jan. 11, the U.S. Department of Justice issued preservation letters to freeze RiversEdge accounts “because they likely contained proceeds of a crime,” the complaint said.
According to the document, RiversEdge is a third-party administrator of retirement plans, and actively services at least 240 retirement plans containing millions of dollars.
At least 17 identified plans with RiversEdge have been subject to suspicious transactions, the complaint said. The government also alleges that some financial transactions were structured into smaller amounts so they did not trigger review.
Palguta, who was interviewed by a Department of Labor investigator on Jan. 4, said his company currently has 13 employees and provides administration and record-keeping services.
Messages left with Palguta and his attorneys were not returned.
According to the Pennsylvania Department of State, RiversEdge was incorporated on Oct. 13, 2009.
On his LinkedIn bio online, Palguta lists himself as having a bachelor’s degree in accounting from Penn State University with previous work experience at Charles Schwab and Federated Investors.
Among other allegations, the complaint said that Palguta’s wife’s identification had been used to initiate transfers even though she hadn’t worked for the company for more than six years.
The government also flagged suspicious transfers between various trust accounts between Nov. 30 and Jan. 4.
Labor Department lawyers accused Palguta and RiversEdge of speeding up the pace of their alleged misdeeds at the end of last year, accusing them of embezzling more than $1.8 million since Nov. 30 and structuring the transactions to fall below a threshhold that might have drawn scrutiny from Mid Atlantic, the custodian.
On Jan. 2, the complaint said, Palguta transferred more than $185,000 from PNC Bank to himself through ATM withdrawals or wire transfers.
In addition to Beaver County, other locally affected plans include Leech Tishman Fuscaldo & Lampl LLC’s 401(k) profit sharing plan and St. Barnabas Health System Retirement Savings Plan.
The government said that a 401(k) plan owned by Greensburg-based W.N. Tuscano Agency, which used RiversEdge from April 2013 until just two months ago, reported it was missing more than $5 million in assets, the complaint said.
“When the Tuscano plan terminated its relationship with RiversEdge, Palguta finally returned the $5 million,” the government wrote in a brief. “The source of that $5 million was transfers of money from several other unrelated plans.”
Paula Reed Ward is a TribLive reporter covering federal and Allegheny County courts. She joined the Trib in 2019 after spending nearly 17 years at the Pittsburgh Post-Gazette, where she was part of a Pulitzer Prize-winning team. She is the author of “Death by Cyanide.” She can be reached at [email protected].