Plaintiff's Amended Derivative Complaint

Calvert Funeral Homes, et al. v. Robert W. Ninker, et al.

Case No. 09 CH 03624 (Cook County, IL)

Among the allegations in Plaintiff's Amended Derivative Complaint are:

The staggering Preneed Trust deficit is the result of a dreadful investment strategy employed with the Preneed Trust funds. The strategy's admitted architect is Schainker, a Merrill Lynch PFS employee and agent, as well as an insurance producer for ML Life Agency and ML Life Insurance. (Compl. at ¶3)
Defendants' success was also predicated on IFDA members receiving misinformation - to the extent they received any information at all. Indeed, Plaintiffs and the vast majority of other Illinois funeral directors had no inkling there was a deficit in the Preneed Trust until the news broke in 2007 when the Illinois Office of the Comptroller ("IOC") finally ab initio stripped IFDA Services of its license to act as trustee to the Preneed Trust. (Compl. at ¶8)
The insurance policies purchased with Preneed Trust funds paid the Insurer Defendants, the Schainker Group and the Merrill Lynch Defendants various policy fees, trailing commissions, and fund fees which diminished the Preneed Trust value by 3.5% each year. Thus, to the extent that the insurance policies did not earn at least 3.5% every year, the Preneed Trust would be behind at the end of each year, a cycle that could - and did - snowball into a much bigger problem. (Compl. at ¶113)
The Schainker Group's personal interests in pursuing this strategy are clear, even though it was contrary to the stated intentions and purposes of the Preneed Trust. As salespeople, and advisors and/or insurance salesmen to the Preneed Trust, the Schainker Group, the Merrill Lynch Defendants, ML Life Insurance, and others reaped significant commissions in connection with the sale of the insurance policies to the Preneed Trust. (Compl. at ¶114)
On more than one occasion...IFDA explicitly requested complete confidentiality of the purported audit, preliminary report, discussions, reports, and all ultimate findings issued by the IOC. Of utmost concern to IFDA was shielding this information from the public and, thus, its members and consumers across Illinois, to avoid any negative impact such exposure might have. IFDA even went so far as to request that all audit-related materials be protected from otherwise lawful Freedom of Information Act requests. (Compl. at ¶123)
Despite the fact that problems underlying the Preneed Trust had started to emerge, IFDA, through various of the Director and Officer Defendants, still encouraged its members to deposit funds as they had always done... (Compl. at ¶139)
Behind closed doors, when asked in March of 2008 whether Merrill Lynch has any liability for the Life Insurance Enterprise, Cullen responded that he believed Merrill Lynch, both former executive directors (Ninker and Dixon) and the Board have liability. Nonetheless, Cullen, Sorling and the Board of Directors continued to do nothing to protect the Preneed Trust. (Compl. at ¶149)
The credited rates (i.e., interest rates reflected in the statements IFDA regularly sent to its members regarding client funds invested in the Preneed Trust) did not match actual Preneed Trust earnings. (Compl. at ¶150)
The damages incurred by the Preneed Trust flow directly from the Schainker Group and the Merrill Lynch Defendants' use of life insurance policies as the primary "investment" vehicle for the Preneed Trust, the Insurer Defendants issuing those policies, and the Director and Officer Defendants, the Accountant Defendants, Cullen, Sorling, and the responsible government regulators failing to issue any warnings or intervene where appropriate. (Compl. at ¶153)
A year and a half later, the Schainker Group, with the blessing of the Merrill Lynch Defendants, continued their charade even as the life insurance policies started to "completely blow up." (Compl. at ¶159)
Despite all of the developments, actions and inactions outlined in this Complaint, Illinois funeral directors were left in the dark and are now left paying for the mega-million dollar damages caused by each of the Defendants. (Compl. at ¶201)
IFDA and IFDA Services have recognized the hardships and damages incurred by funeral directors and funeral homes across the state of Illinois cynically calling the mounting damages a "near-term inconvenience" of the "unhappy funeral directors." (Compl. at ¶227)

The goal of Wexler Wallace and its funeral home clients is to obtain a judgment that restores all of the money lost from the Preneed Trust so that the Preneed Trust can operate as preneed funeral planning customers and Illinois funeral directors intended. As part of a judgment making the Preneed Trust whole, the judgment should:

Require defendants Edward Schainker and Merrill Lynch, Pierce, Fenner & Smith, Inc. to disgorge and remit to the Preneed Trust all of the fees and other compensation they received for or in connection with transactions relating to the Preneed Trust and pay for the damages their misconduct caused;
Award IFDA and IFDA Services, and in particular the Preneed Trust, damages sustained as a result of defendants' conduct; and
Award pre-judgment and post-judgment interest and Plaintiffs' costs and expenses for bringing this action, including reasonable attorneys' and experts' fees.