Misuse of Proprietary Funds in 401(k) Accounts

Overview of Allegations:

This complaint concerns fraudulent mismanagement of retirement funds by Principal Life Insurance Company (“Principal”), specifically regarding the Principal U.S. Property Separate Account (PUSPSA). Evidence suggests that Principal engaged in deceptive practices involving misappropriation of investor funds, failure to report plan assets accurately, and questionable real estate transactions—leading to significant financial losses for 401(k) participants.

Details of Wrongdoing:

1. Failure to Accurately Report 401(k) Plans (2006–2007):
   • Principal allegedly under-reported thousands of 401(k) plans to the Department of Labor.
   • Contributions from these unreported plans remain unaccounted for.
2. Improper Use of Retirement Funds in Joint Ventures:
   • Principal entered a $1 billion joint venture with Trammell Crow Co. (TCC) in 2006, claiming the investment was backed by the PUSPSA.
   • No financial record from 2006 indicates the availability of $1 billion in “ready capital.”
   • The majority of TCC’s projects failed to appear in the PUSPSA portfolio, raising concerns over fund misallocation.
3. Questionable Real Estate Transactions:
   • 1412 Broadway (New York City):
     • Acquired by Principal for $168.9 million (2006); recapitalized in 2009, resulting in a loss exceeding $60 million for PUSPSA investors.
   • 104 W. 40th (New York City):
     • Purchased by Principal in 2007 for $140 million.
     • Entered foreclosure proceedings in 2010 due to mortgage default and was later sold for only $10 million, causing investor losses.
     • Columbia Business School hosted a seminar highlighting Principal’s mishandling of this transaction.
4. Misuse of Proprietary Funds in 401(k) Accounts:
   • Principal primarily invests in proprietary funds, raising concerns about conflicts of interest.
   • The company allegedly engaged in a form of short-selling against investors:
     • Selling fund shares it did not own using off-balance-sheet accounting.
     • Delaying fund contributions, resulting in deferred payments at unfavorable rates.
   • This practice mirrors characteristics of financial fraud and Ponzi-like investment schemes.

Supporting Evidence:

• White House Fact Sheet (Feb. 23, 2015) discussing financial misconduct.
• SEC study reporting $1 billion in monthly retirement investor losses.
• Public news reports detailing Principal’s questionable investment activities.
• Case study hosted by Columbia Business School addressing Principal’s financial mismanagement.

Legal and Regulatory Violations:

• Potential violations of ERISA (Employee Retirement Income Security Act).
• Possible misrepresentation under federal securities laws.
• Concealment of financial risks to investors.
• Shadow banking and non-GAAP accounting practices used to obscure liabilities.

Requested Action:

• DOJ investigation into Principal’s financial activities related to retirement plan management.
• Review of compliance with fiduciary responsibility laws governing 401(k) plans.
• Enforcement actions to recover investor funds lost due to mismanagement.
• Policy recommendations to prevent misuse of proprietary funds in employer-sponsored retirement plans.

Declaration:

I submit this complaint in good faith, believing the described activities warrant investigation.

Dennis Myhre, ASIC