Full opinion text
OPINION AND ORDER BAER, District Judge. TABLE OF CONTENTS BACKGROUND......._....................................................................285 I.Introduction....................................................................285 II. Local 966 ......................................................................286 III. The Amended Complaint.........................................................286 IV. The Motions and the Settlement..................................................288 DISCUSSION.............................................................................289 I. The Trustee Defendants.........................................................289 A Failure to Collect Delinquent Contributions.....................................289 B. Travelers Insurance Plan.....................................................291 1. Breach of Fiduciary Duty: ERISA Section 404 ............................... 291 2. Prohibited Transactions: ERISA Section 406.................................292 C. Fiduciary Breaches: Investments..............................................294 1. Loss....................................................................295 2. Investment Policy and Guidelines...........................................295 3. Investment Advisers......................................................296 4. Investigation of Fund Investments..........................................297 5. Monitoring the Pension Fund’s Solvency.....................................299 D. Selecting Service Providers...................................................300 E. Diversification of Fund assets.................................................301 II. Bryan McCarthy................................................................302 A Fiduciary Liability...........................................................302 B. Non-fiduciary Liability........................... 304 1. Fiduciary Breaches.............................................'..........304 2. Prohibited Transactions...................................................306 a. Travelers Arrangement..........................:.......................307 b. Delinquent Contributions......................................■.........308 C. Malpractice.................................................................308 III. Vincent Sombrotto..............................................................309 IV. Equitable Relief.......:.........................................................312 A. General Standards.......................... 312 B. Current Employer Trustees: Smith and Pasqualone ........................... .313 C. Bryan McCarthy............................................................313 conclusion..............................................................::...........313 Plaintiffs move for summary judgment against all non-settling defendants on the first through seventh, ninth and eleventh causes of action in the Amended Complaint. Defendants have cross-moved for summary judgment on all eleven causes of action. For the reasons discussed below, plaintiffs’ motion is GRANTED in part and DENIED in part. Defendants’ motions are DENIED. BACKGROUND I. Introduction This case involves the administration of Teamster Local 966’s Health and Pension Funds. Plaintiffs are Chairman of the Boards of Trustees of the Local 966 Health and Pension Funds (the “Funds” or the “Plans”) and a plan participant. They bring this action under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (“ERISA”) against current and former Employer Trustees of both Plans; two former Union Trustees; the Local’s past President, Vincent Sombrot-to; and the Funds’ former counsel and current counsel to the Employer Trustees, Bryan McCarthy. The Amended Complaint asserts breaches of fiduciary duty by the defendants in violation of ERISA Section 404, 29 U.S.C. § 1104, as well as prohibited transactions in violation of ERISA Section 406, 29 Ú.S.C. § 1106. It seeks to assert liability for these breaches against defendants Sombrotto and McCarthy as well, alleging that while neither is a trustee, they are nonetheless liable as fiduciaries pursuant to 29 U.S.C. § 1002(21)(A). Plaintiffs also assert a pendent state-law legal malpractice claim against defendant McCarthy. The Amended Complaint seeks money damages as well as equitable relief, which, if granted, would remove, the current Employer Trustees from their positions and remove Bryan McCarthy as counsel to the Employer Trustees pursuant to ERISA Section 502(a). 29 U.S.C. § 1132(a). In essence, plaintiffs’ allegations paint a picture of gross mismanagement, if not worse. Plaintiffs assert — and to a considerable extent have established — that the defendants abdicated their responsibility to act prudently and in the best interests of the Funds’ participants. Moreover, this failure appears to have benefitted the friends, colleagues and family of defendant Bryan McCarthy. To all those who thought that Senator McClellan, Robert Kennedy and their colleagues fashioned legislation that would herald the end to such activity, the papers on this motion are a stark reminder that the success of their efforts requires eternal vigilance. II. Local 966 The Funds are affiliated with Local 966 of the International Brotherhood of Teamster (“IBT”). As a result of a lawsuit alleging corruption in the IBT and a consent agreement entered into between the IBT and the United States government, an Independent Review Board (“IRB”) was created to help root out corruption in the Union. After conducting an investigation into Local 966, the IRB alleged that (i) “the financial condition of Local 966 [was] deteriorating and that membership [was] declining,” (ii) “Local Union 966 officers [had] engaged in dual unionism by organizing several non-IBT locals,” and (iii) “Local 966 officers [had] engaged in financial malpractice including embezzlement of Local Union Funds.” Notice of Trusteeship, Pl.Ex. B; see also Memo from IRB to Ron Carey, April 12, 1994, Pl.Ex. A. In light of these allegations, the IRB recommended that Local 966 be placed in Trusteeship. Memo from IRB to Ron Carey, April 12, 1994, Pl.Ex. A. IBT General President Ron Carey placed Local 966 into temporary trusteeship effective April 27,1994 and appointed Gene Moriarty to serve as Trustee. See Notice of Trusteeship, Pl.Ex. B. At that time, defendant Sombrotto was removed from office as the Local’s president. The new Local Trustee, Gene Moriarty, appointed himself and another individual as the Funds’ Union Trustees to replace defendants Zaccherio and Gonzalez. Moriarty, who brought this action on behalf of the Funds, has since been succeeded by plaintiff Mark Liss. III. The Amended Complaint The Amended Complaint asserts eleven causes of action. First, plaintiffs allege that defendants failed to adequately go about the collection of delinquent contributions or the interest due on such delinquent contributions and specifically implicates defendant Bryan McCarthy in this practice. In essence, plaintiffs allege that the defendant trustees — with McCarthy as their counsel, colleague and collaborator — had a practice of regularly waiving interest on delinquent contributions from employers as long as the payments were ultimately made before suit was filed. This practice amounted to interest regularly being waived on contributions three or more months late, without any investigation by the trustees or McCarthy as to whether such interest was in fact collectible and without any apparent consideration of the availability of attorney’s fees and liquidated damages as additional remedies in suits to collect delinquent contributions, see 29 U.S.C. §§ 1132(g), 1145. Moreover, and more troubling, some of these delinquent employers were represented by, and had business dealings with, Bryan McCarthy’s brothers through the brothers’ various consulting and other businesses. Plaintiffs allege this practice violates ERISA Sections 406(a)(1) & 406(b)(2), 29 U.S.C. §§ 1106(a)(1) & 1106(b)(2), which prohibit the extension of credit to parties-in-interest. Plaintiffs also assert that such conduct is violative of defendants’ fiduciary duty. See ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1). Second, plaintiffs assert that defendants engaged in prohibited transactions and breached their fiduciary duty, again in violation of ERISA Sections 404 and 406, by allowing the Health Fund to enter into a certain arrangement with the Travelers Insurance Company (“Travelers”). The Travelers allegations implicate defendants McCarthy and Sombrotto in even more conflicts of interest involving additional union locals. Defendant Sombrotto (who was Local 966’s president, but not a trustee of the Funds) entered into an agreement with Travelers whereby Travelers agreed to provide health insurance for 2,000 members of the 966 Health Fund at a fixed premium per person or family. The agreement depended on minimum enrollment figures and set target dates by which those enrollment figures were to be met. New if any Local 966 members ever enrolled in the Travelers Plan, and indeed it is hard to tell if they were ever even solicited. Rather, without Travelers’ knowledge or approval, defendants enrolled members of two other union locals in the health plan. The two other locals were Local 912 of the United Commercial and Industrial Workers Union (“Local 912”) and Local 1019 of the National Organization for Workers of America (“Local 1019”), neither of which is affiliated with a national labor organization (collectively, the “unaffiliated Locals”). It is the solicitation and sale of health insurance through these unaffiliated locals that forms the central core of this claim. Locals 912 and 1019 were organized by defendant McCarthy and others, apparently for the sole purpose of selling the Travelers insurance at a profit. The arrangement worked as follows. . Small businesses were solicited — primarily if not solely for the purpose of providing their employees with health insurance — by two employer organizations, the Association for Organized Services, Inc. (“AOS”) and National Plan Administrators, Ltd. (“NPA”). The businesses would join one of these employer organizations. AOS or NPA in turn would each enter into a purported “collective bargaining agreement,” on behalf of itself and its member companies, with one of the unaffiliated Locals. See, e.g., PI. Exh. V. These agreements recognized the Local in question (912 or 1019) as the collective bargaining agent for all full-time employees of each member company, set forth certain basic working terms and conditions and provided health care coverage for member businesses’ employees. Apparently, the agreements were dependent on the provision of health care coverage to member businesses’ employees and concomitantly a profit to thé McCarthy family. Indeed, the agreements were terminable for failure to pay the health care premium. See, e.g., PI. Exh. Y, Art. XII, § 3. AOS was organized by Peter Zappasodi, a service provider to the Local 966 Health Fund who was also making periodic payments to Bryan McCarthy’s brothers. McCarthy’s conflicts of interest expand further with the revelation that McCarthy himself was counsel to Locals 912 and 1019 and in fact drafted the letters that sought their participation in the 966 Health Fund. The employer-members of AOS and NPA paid AOS and NPA up to double the premium cost that Travelers was charging Local 966. AOS (the organization through which kickbacks were funneled to the McCarthy family) and NPA kept most of this excess, with the unaffiliated locals, 912 and 1019, keeping the rest. The remainder — the “net premiums” charged by Travelers — was passed on to Travelers via Local 966. These excess charges are the gist of this claim, as plaintiffs allege the skimmed profits rightfully belong to the Health Fund. More specifically, plaintiffs allege the money is a “plan asset” of Local 966’s Health Fund under ERISA Section 406(a). They allege further that this “plan asset” went into the pockets of certain parties-in-interest: AOS and Defendant McCarthy, who received payments of $500 per month .for the services he performed as counsel to Locals 912 and 1019. Thus, they claim the arrangement violated ERISA’s prohibited transaction provisions, which forbid certain transactions involving plan. assets and parties in, interest. 29 U.S.C. § 1106. Travelers ultimately cancelled the program in November 1993, after less than a year, because of a failure to meet the minimum enrollment requirements and because non-966 participants were enrolled. See PI. Exh. OO. As can be expected, the enrollment of non-966 participants changed the applicable premiums on the policy (which were calculated to cover 966 participants). Travelers has sought reimbursement of some $600,000 from the Health Fund as a result of the recalculated premiums. Peculiarly, Travelers has not instituted suit to collect the alleged deficiency- . Plaintiffs’ third through seventh, and ninth, causes of action allege breaches of fiduciary duty for the following acts (or omissions) of the defendants relating to Fund assets: failure to implement an investment policy and guidelines (III); failure to diversify Fund assets (TV); failure to retain investment advisers for the management of Fund assets (V); failure to properly investigate Fund investments (VI); failure to monitor the Pension Fund’s solvency (VII); and failure to exercise due diligence in selecting service providers for the Funds (IX). As discussed in greater detail below, these allegations relate to the trustees’ complete and total failure to take even the most minimal and basic steps to ensure that Fund assets were invested and spent properly. The list of omissions is a prototype for breached fiduciary duty: the trustees failed to investigate the risks and propriety of investments, and instead accepted their broker’s recommendations blindly; they failed to question or learn the extent of the commissions this same broker was charging them; they never compared such charges to the charges of other brokers or investment advisers; they never adopted an investment policy or guidelines; they never hired a professional money manager; they never considered their statutory duty to diversify investments; they failed to take any action for years in light of evidence of the Pension Fund’s growing insolvency; and they failed to conduct any investigation into the Health Fund’s service providers, most of whom were making regular payments to the McCarthy family. All the while, they were represented by McCarthy, who apparently failed to advise the trustees as to their duty to do any of the above or of any of his numerous conflicts of interest. Defendant Sombrotto, who attended virtually all of the Funds’ meetings, and who as Local President had the power to appoint and remove the Union Trustees and the concomitant duty to monitor their performance, never took any action either. Plaintiffs’ eleventh cause of action asserts a state-law legal malpractice claim against defendant McCarthy for, inter alia, his failure to advise the trustees as to their obligations to perform the acts described above. Finally, plaintiffs’ eighth cause of action alleges that defendants breached their fiduciary duties by taking actions allegedly intended to ensure their continued control of the Funds in the face of the impending IRB/ IBT Trusteeship. Plaintiffs’ tenth cause of action asserts a breach of fiduciary duty by defendants for allowing defendant Smith to be appointed as an Employer Trustee, even though his status as a Union member rendered him disqualified from so serving. Plaintiffs have not moved for summary judgment on these claims. Defendants have moved for summary judgment on these claims. IV. The Motions and the Settlement Plaintiffs' have moved for summary judgment on liability on counts one through seven, nine and eleven of the Amended Complaint and ask the Court to exercise its power to remove the current Employer Trustees and McCarthy from their positions. All of the defendants have moved for summary judgment dismissing the Amended Complaint. Oral argument on the motions was held on July 22, 1997. Since that time, the four former trustee defendants and the plaintiffs have settled all the claims asserted against the former trustees. The current Employer Trustees, Stephen Smith and Joseph Pasqualone, who have equitable as well as legal claims pending against them, have not agreed to a settlement. The settlement by its terms, however, dismisses all claims for money damages against the current Employer Trustees. The settlement is subject to notification to the Plan Participants and Court approval. For purposes of deciding the motions, however, the Court deems all claims against the former trustees dismissed and all but the equitable claims against the current Employer Trustees dismissed. The remaining claims are the equitable claims against the current Employer Trustees, and all claims against defendants McCarthy and Sombrotto. The relief sought on these remaining claims includes: (i) removal of the current Employer Trustees based on their participation in the trustees’ breaches; (ii) finding McCarthy liable both for his role in the trustees’ breaches and for malpractice and his removal as counsel to the Employer Trustees; and (iii) finding Som-brotto liable as a fiduciary for the trustees’ breaches. As all of these claims are depen-dant on the conduct of the defendant trustees, the Court will address plaintiffs’ claims against all the trustees, notwithstanding the settlement. DISCUSSION I. The Trustee Defendants Ten of the causes of action are brought against the Trustee defendants. As noted above, the former trustee defendants have settled all claims against them. In exchange for this settlement, the plaintiffs have also released all claims for money damages against the current Employer Trustees. The only remaining claims against the trustee defendants, therefore, are ■ the equitable claims against the current Employer Trustees. Furthermore, as noted above, the claims against defendants McCarthy and Sombrotto are largely dependent on the trustee defendants’ actions. Accordingly, and notwithstanding the settlement of the legal claims against the former trustees and the dismissal of the legal claims against the current Employer Trustees', the Court must still address plaintiffs’ motion as it relates to the alleged breaches of fiduciary duty by all of the trustees. I address each of these claims in turn. The non-trustee defendants’ (i.e, McCarthy and Sombrotto) role in these breaches is discussed separately. A. Failure to Collect Delinquent Contributions Count One of the Amended Complaint seeks to hold all defendants liable for. the trustees’ failure to make the requisite effort to collect delinquent contributions and interest from employers. Plaintiffs contend that this failure constitutes both a breach of defendants’ fiduciary duties under ERISA Section 404(a)(1), 29 U.S.C. § 1104(a)(1), and a prohibited transaction under ERISA Sections 406(a)(1) and 406(b)(2). 29 U.S.C. §§ 1106(a)(1), 1106(b)(2). There is no dispute that the 966 Funds regularly waived interest on delinquent contributions and rarely, if ever, filed suit to seek delinquent contributions or the interest due thereon. It was the Funds’ de facto policy not to seek interest on delinquent contributions paid within 90 days of their delinquency. See McCarthy Aff. ¶5; Tierney Depo. at 55. No written policy with respect to the collection of overdue contributions existed. Tierney Depo. at 52; Zaccherio Depo. at 67; Paul Depo. at 425. There is also no dispute that significant employer delinquencies existed, with some payments 23 months overdue. McCarthy Aff. Exh. C. Of even more concern is the allegation that some of these employers were represented by McCarthy’s brother, Randy, through National Consultants Associated, Ltd. (“NCA”). See PI. Rule 56.1 Stmnt. ¶¶ 61, 70; McCarthy Depo. at 41 (admitting Randy McCarthy represented 966 employers); Zaccherio Depo. at 26. Defendants concede that “the Funds incurred a loss but there is no proof that this was caused by any breach of duty by the Defendant Trustees and there is no proof offered that those monies cannot still be collected.” Def. Mem. at 5. That is, defendants argue that because the unpaid interest and other delinquencies can (possibly) still be collected, defendants’ acts do not amount to a breach of duty. Defendants make this same argument with respect to Fund investments. In each instance, they miss the point of plaintiffs’ motion for partial summary judgment. The instant motion seeks to establish certain facts as to which there is no dispute and asks the Court to draw the appropriate legal consequences. The existence and extent of any loss awaits the trial. See infra Part I.C.l. There can be no question that the trustees’ failure to collect delinquent contributions and their failure to investigate whether such collection procedures were reasonable and feasible, to say nothing of their failure to provide a written policy guideline, constitute a breach of their fiduciary duties under ERISA Section 404(a)(1). 29 U.S.C. § 1104(a)(1). As the Court of Appeals has noted, “trustees have a fiduciary duty ‘to act to ensure that a plan receives all funds to which it is entitled, so that those funds can be used on behalf of participants and beneficiaries.’ ” Diduck v. Kaszycki & Sons Contractors, Inc., 874 F.2d 912, 916 (2d Cir.1989) (quoting Central States, Southeast & Southwest Areas Pension Fund v. Central Transp., Inc., 472 U.S. 559, 571, 105 S.Ct. 2833, 86 L.Ed.2d 447 (1985)). In performing this duty, trustees have a range of options — including suing the delinquent employer, randomly auditing the employer’s records, threatening work stoppages, picketing the employer, or similar actions — depending upon the circumstances. There is no duty to take any particular course of action if another approach seems preferable. Rather the trustees’ duty is to act with ‘care, skill, prudence and diligence,’ 29 U.S.C. § 1104(a)(1)(B), in attempting to recover delinquent contributions or in declining to take a particular course of action to recover those contributions. Id. at 917 (citations omitted). '■ As the Diduck court said so well, there is no obligation to institute legal action in every circumstance, regardless of the likelihood of success. Id. (trustees acted prudently in declining to sue insolvent employer). However, “[t]he trustees had a duty to investigate the possibility of a lawsuit and other options and to make an informed decision whether to pursue any. Failure to do so ... [is] a breach of such duty.” Ches v. Archer, 827 F.Supp. 159, 167 (W.D.N.Y.1993); see also Castaneda v. Baldan, 961 F.Supp. 1350, 1354 (S.D.Cal.1997) (“as part of their fiduciary duty to make reasonable collection efforts, plan administrators must make a reasonable investigation and decision as to whether to initiate legal action to recover plan assets, such as delinquent contributions”). As the record is clear that the trustees engaged in no such individualized determinations as to the appropriateness of legal action,-but'rather regularly waived interest and failed to collect overdue principal, the Court concludes that as to this claim the defendants have failed to raise a genuine issue of material fact. Similarly, there is no question but that the trustees’ handling of delinquent contributions constituted a prohibited transaction under ERISA Section 406. That-section prohibits: (a) the “lending of money or other extension of credit between the plan and a party in interest”, ERISA § 406(a)(1)(B), 29 U.S.C. § 1106(a)(1)(B); and (b) fiduciaries from acting in “any transaction involving the plan on behalf of a party ... whose interests are adverse to the interests of the .plan,” ERISA § 406(b)(2), 29 U.S.C. § 1106(b)(2). Employers are parties-in-interest, 29 U.S.C. § 1002(14)(C), their interests are adverse to those of the plan, Gruby v. Brady, 838 F.Supp. 820, 833 (S.D.N.Y.1993), and “the employer’s obligation to contribute to the Fund constitutes a transaction involving Fund assets.” Id. Moreover, forgiving delinquent contributions and the interest due thereon constitutes the “extension of credit” between the plan and the employer. See Central States, 472 U-S. at 573 (referring to section 406(a)(l)(B)’s prohibition on extension of credit and noting “trustee responsibility for assuring full and prompt collection of contributions owed to the plan”); Prohibited Transaction Exemption 76-1, 41 Fed.Reg. 12740, 12741 (1976) (“if the plan is not making systematic, reasonable and diligent efforts to collect delinquent contributions ... such failure may be deemed to be a prohibited transaction”) (quoted in Castaneda, 961 F.Supp. at 1356-57); but see Castaneda, 961 F.Supp. at 1356-57 (finding failure to collect delinquent contributions does not state claim for section 406 prohibited transaction violation independent of breach of fiduciary duty claim). The Court therefore holds that the trustees’ failure to diligently investigate and pursue delinquent contributions, including the interest due thereon, constitutes both a breach of their fiduciary duty and a prohibited transaction under ERISA. B. Travelers Insurance Plan 1. Breach of Fiduciary Duty: ERISA Section 404 There is no question that the trustees’ acquiescence in the Travelers arrangement constitutes a breach of fiduciary duty. None of the Health Fund minutes reflect any discussion by the trustees of the benefit to the Fund of permitting non-Loeal 966 members to participate in the Fund. See Pl. Rule 56.1 Stmnt. ¶ 140; Def. Response to Pl. Rule 56.1 Stmnt. ¶ 5 (admitting allegations). At the December 16,1992 Health Fund meeting, McCarthy requested authority to have the Fund certified as a Multiple Employer Welfare Arrangement, and the trustees authorized him to do so. Health Fund Mins. Dec. 16,1992 at 5-6. At the April 15,1993 Health Fund meeting, the trustees approved the participation in the Health Fund of employers with collective bargaining agreements with Local 1019, on condition that the 966 Health Fund actuary approve their participation and that each Employer’s contribution rate be based on “the utilization/experi-enee of the participants and beneficiaries on whose behalf the Employer is required to make contributions.” Health Fund Mins. April 15, 1993 at 7. This followed a request from Local 1019 that its members be allowed to participate in the Fund, signed by Local 1019 President Stephen Sombrotto, brother of defendant Vincent Sombrotto. See Pl. Exh. T. The requested approval from the fund actuary was never received. Pl. Rule 56.1 Stmnt. ¶ 165; Def. Response to Pl. Rule 56.1 Stmnt. ¶ 1. Rather, the actuary stated that in order to provide the requested assessment the following information regarding Local 1019 members would be necessary: age, sex, location, previous claim history and industry of employment. PL Exh. U. The actuary concluded, “[w]ithout most of the information we cannot give you a figure to use.” Id. This information was never compiled or provided to either the trustees, the actuary or Travelers. Gonzalez Depo. at 130-31; Zaccherio Depo. at 195, 201-02; Tierney Depo. at ISO-83, 210 (Travelers was not given claims information regarding Local 912 and 1019 members “because we [Local 966] didn’t have that information”), 218. Indeed, defendant Gonzalez stated at his deposition, in response to a question regarding his knowledge about Local 1019’s membership: “No [I did not have that kind of information], and I don’t see any reason to have it, that’s none of my business what 1019 does.” Gonzalez Depo. at 132. The problem with this response, of course, is that it was Gonzalez’ business — -just as it was the business of the other trustees in light of the decision to allow Local 1019 members to participate in' the 966 Health Fund. Such a decision might, of course, among other things, result in higher premiums and thus require a further and larger contribution from the 966 Health Fund. It is this attitude — the total lack of any investigation or due diligence — that apparently characterized most if not all of the trustees’ actions and is at the core of the other fiduciary breach allegations discussed below. A similar yarn is spun with regard to Local 912’s participation in the 966 Health Fund. The only added twist is that the trustees, on December 15, 1993, at the suggestion of defendant McCarthy, retroactively amended the minutes of their April 15; 1993 meeting to correct the alleged “oversight” in those minutes, which failed to reflect approval of Local 912’s participation. Health Fund Mins. Dec. 15, 1993 at 7. The problem with such an amendment is that it does not appear that Local 912 requested to participate in the Health Fund until May 20,1993, more than a month after the April 15 meeting. See Pl. Exh. W. The retroactive amendment of the minutes to reflect an event that had not yet occurred is another example of the trustees’ total abdication of any oversight responsibility with respect to the Travelers arrangement and the participation of Locals 912 and 1019 in the activities of the 966 Health Fund. It is also a troubling example of McCarthy’s control over the trustees. The trustees of the 966 Health Fund displayed the same lack of knowledge with respect to the facts and potential consequences with respect to Local 912 as were evidenced in their decision with respect to Local 1019’s participation. See generally Pl. Rule 56.1 Stmnt. ¶¶ 237-46; Gonzalez Depo. at 156; Zaccherio Depo. at 228,- 230, 242; Tierney Depo. at 210., As the above demonstrates, the trustees completely failed in their duties to perform even the most minimal investigation as to the wisdom, appropriateness and propriety of allowing Locals 912 and 1019 to participate in the 966 Health Fund. While the trustee defendants argue that the 966 Health Fund incurred no loss as a result of their conduct, these findings are nevertheless relevant and provide support for plaintiffs’ equitable claims against the current Employer Trustees and McCarthy. Furthermore, in light of the holding below as to Sombrotto’s fiduciary status, these findings limit the issues at trial to the existence and extent of any damages. Should McCarthy be found to be a fiduciary after trial, these findings will also be applicable to the breach of fiduciary duty claims against him. 2. Prohibited Transactions: ERISA Section 406 Plaintiffs contend also that the Travelers insurance arrangement constitutes a prohibited transaction because it resulted in “transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan” in violation of EEISA Section 406(a)(1)(D). 29 U.S.C. § 1106(a)(1)(D). As noted above, the Travelers plan involved employers paying inflated premiums to employer organizations (AOS and NPA). These employer organizations apparently served no purpose other than to recruit businesses so that their employees could receive health care coverage at what appear to be inflated prices. These employer organizations would keep up to one-half of the money and forward the rest to Locals 912 and 1019, with whom they had “collective bargaining agreements.” Locals 912 and 1019 would then forward the premiums to Local 966, which in turn would pay Travelers. In order for a particular transaction to run afoul of Section 406(a)(1)(D) it must involve (1) a transfer (2) to a party in interest (3) of plan assets. The transfer at issue in the Travelers arrangement was the transfer of the premiums paid by Local 1019 employers to AOS; from AOS to Local 1019; from Local 1019 to Local 966 and from Local 966 to Travelers. The parties in interest involved are: (1) Peter Zappasodi, the principal of AOS, who received income from AOS; (2) Michael Kauffman, who was paid by AOS to solicit clients; and (3) Bryan McCarthy, who was counsel to Locals 912 and 1019 and received payment from these Locals for his services. Zappasodi and Kauffman are parties-in-interest because they are service providers to the Funds. 29 U.S.C. § 1002(14)(B). McCarthy is a party-in-interest because he was Funds counsel and remains the counsel for the 966 Employer Trustees. 29 U.S.C. § 1002(14)(A). The “plan assets” that plaintiffs contend were transferred to these parties-in-interest were the excess fees paid by the Local 1019 employers for the Travelers coverage. As noted above, the employers paid significantly more for such coverage than Local 966 was paying Travelers. The excess went to AOS — and indirectly to Zappasodi and Kauff-man, and to Local 1019 — and indirectly to Bryan McCarthy. In support of their contention that these excess charges constitute “plan assets” under Section 406, plaintiffs rely on In Re Consolidated Welfare Fund ERISA Litigation, 839 F.Supp. 1068 (S.D.N.Y.1993) (“Consolidated ”). The Court in Consolidated was faced with a similar arrangement in which the defendant acted as a broker for small businesses seeking health care coverage for their employees, similar to the role AOS played here. Defendant entered into “collective bargaining agreements” with the union local and then entered into “adoption agreements” with the various employers, pursuant to which the employers could enroll their employees in the union local and be eligible for health care coverage. Id. at 1069-70. Similarly here, AOS entered into a collective bargaining agreement with Local 1019 and then entered into individual agreements with respect to each employer recruited. The defendant in Consolidated, like AOS, kept a portion of the employers’ contributions as a commission. Id. at 1070. The Consolidated court held such commissions constituted plan assets and that the arrangement therefore violated Section 406 and plaintiffs urge this Court to follow suit. A close analysis of Consolidated, however, reveals two crucial distinctions that preclude summary judgment for plaintiffs. First, as noted in Consolidated, “in the absence of an explicit statutory definition, the term ‘assets of the Plan’ should be determined by the documents governing the relationship between the Fund and the employers.” Id. at 1073; cf. Galgay v. Gangloff, 677 F.Supp. 295, 301-02 (M.D.Pa.1987) (absent congressional definition of plan assets over which an individual must have control to be a fiduciary, the court looks to collective bargaining agreement). Here, as in Consolidated, those documents consist of the agreement between the broker (AOS) and the union local on the one hand and the employers and the broker on the other hand. In Consolidated, the Court noted that the Trust Agreement at issue there provided that employer contributions constitute the trust estate and defined such employer contributions as the payments an employer is required to make to the Funds. Id. Furthermore, the agreements between the broker and the employers specifically stated that the required contributions were “monthly contributions to the Welfare Fund.” Id. Relying on these provisions, the Consolidated court held that the full employer contributions constituted “plan assets” and that the “skimming” of commissions by the defendant broker constituted a prohibited transaction. Id. An examination of the relevant documents at issue here reveals that there is some question as to whether the excess premiums constitute plan assets. Unlike the agreements in Consolidated, the agreements between AOS and the employers explicitly state that the inflated premium the employers were charged “includes Association dues, Union dues and Pension fund contributions.” Moreover, Local 966’s Trust Indenture defines the Trust as consisting of “the entire trust estate ... including ... all funds received in the form of contributions.” Som-brotto Exh. 1, Art. I, § 8 (emphasis added). This is in contrast to Consolidated, where the trust agreement defined the trust’s estate as consisting of “employer contributions.” The parties have hot briefed this point, nor have they made reference to the Trust Indentures, which were submitted by defendant Som-brotto for wholly different reasons. Accordingly, the Court finds that there exist material issues of fact as to whether the full amount of the employer contributions constitute plan assets for purposes of Section 406. The second significant distinction'between Consolidated and the case at bar is the existence of the “go between” unaffiliated Locals — Locals 912 and 1019. Even if the excess premiums were determined to be plan assets, the question arises as to whether they were assets belonging to Local 966 or to Locals 912 and 1019. Again, the parties have not briefed this issue. The Court doubts very much that the use of such “go-between” locals can insulate an otherwise improper transaction, for such an outcome would merely provide sophisticated swindlers with an opportunity to evade the statute’s carefully constructed prohibitions. Nevertheless, as the parties have not addressed this issue either, I find that summary judgment is inappropriate because questions of fact remain as whether the excess premiums constitute “plan assets” of Local 966. C. Fiduciary Breaches: Investments Plaintiffs assert a variety of claims relating to the trustees’ handling of fund investments: failure to implement an investment policy; failure to diversify Fund assets; failure to retain investment advisers; failure to properly investigate Fund investments; failure to monitor the Pension Fund’s solvency and the failure, to exercise due diligence in selecting service providers for the Funds. Although styled as separate causes of action, the allegations, in effect amount to charges that defendants’ conduct in running the Funds violated ERISA’s general fiduciary duty provision, ERISA § 404(a)(1)(B), and the specific ERISA requirement that assets be diversified (count four), ERISA § 404(a)(1)(C). 29 U.S.C. §§ 1104(a)(1)(B), 1104(a)(1)(C). While the Court will address each allegation separately to determine whether any material issues of fact exist, it is important to keep in mind the mosaic that emerges when all the allegations are looked at together, ERISA requires that fiduciaries discharge their duties “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B). It is against this setting that the challenged actions must be measured. 1. Loss While each of the above-listed claims is discussed individually below, I first discuss the trustees’ common defense to each of these claims. Defendants contend that “[e]ven if, arguendo, the Defendant Trustees herein were found to have breached their fiduciary duties, they cannot be held liable under ERISA without also proving a causal connection between their alleged wrongdoing and the loss to the Fund.” Def. Mem. at 6. This is also the basis for the defendant trustees’ motion for summary judgment on all the claims against them. This argument fails for several reasons. First, it ignores one of the important functions of motions for partial summary judgment: the narrowing of issues for trial. Thus, the finding that the trustees did in fact breach their fiduciary duties would eliminate the need for a trial on that issue, and limit the trial to the “causal connection” defendants claim is missing and the extent of the damages, if any. Second, plaintiffs have raised an issue of material fact as to the existence of a loss, sufficient to withstand defendants’ motion for summary judgment. In this regard, plaintiffs have submitted an expert opinion from Jack C. Marco, president of the Marco Consulting Group, the largest provider of investment consulting to Taft-Hartley plans with 50 employees or more. See Levy Aff. Exh. 2. In his report, Mr. Marco concludes that the Local 966 Pension Fund “underperformed all of the Taft-Hartley plans measured by the Marco Consulting Group. The annualized return for the plan was 6.5% per year versus the average (median) Tafl>-Hartley plan which earned 11.2% per year.” Id. at 2. He estimated the underperformance of the plan at between $10.2 million and $13.4 million. Id. While such a report does not establish the existence of loss (or its extent) as a matter of law, it suffices to state a prima facie case of loss. This is especially true where, as here, the allegations of fiduciary breaches relate to the overall investment strategy of the Funds (or the lack thereof) as opposed to the wisdom of a single transaction or investment. See Dardaganis v. Grace Capital Inc., 889 F.2d 1237, 1244 (2d Cir.1989) (“Where, as is in this case, the breach arises from a pattern of investment rather than fi*om investment in a particular stock, courts will rarely be able to determine, with any degree of certainty, which stock the investment manager would have sold or declined to had he complied with investment guidelines____[Rather,] the District Court should presume that, but for the breach, the funds would have been invested in the most profitable of the alternatives ____”). In a case such as this, where all the investments are alleged to have been improper, the “alternatives” to which the Fund must be compared are other properly managed funds. Thus, the only manner in which plaintiffs can show loss is to establish what a reasonable investor would have done and how such investments would have performed. Such a measure of loss has been repeatedly recognized as legitimate. Id. at 1243; Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir.1985) (Bierwirth ) (“the' measure of loss applicable under ERISA section 409 requires a comparison of what the Plan actually earned ... with what the Plan would have earned had the funds been available for other Plan purposes”). Plaintiffs will bear the burden of proof with respect to causation and extent of damages at trial. They are not required to make such a showing at this stage. They have only moved for partial summary judgment with respect to the question of whether the trustees’ acts constituted a breach of fiduciary duty. Third, as noted above, plaintiffs seek the removal of the current Employer Trustees and McCarthy. The propriety of such relief is based on the conduct of these defendants, and not the existence or extent of losses caused by such conduct. Brock v. Robbins, 830 F.2d 640, 647 (7th Cir.1987). Thus, the Court’s findings with respect to defendants’ actions may suffice to grant such relief. 2. Investment Policy and Guidelines Count three of the Amended Complaint alleges that the defendants “failed to implement any investment policy and guidelines for the investment of fund assets” and thereby breached their fiduciary duties. Amended Compl. ¶37. Defendants concede that “[t]he Trustees did not maintain a formal written investment policy or guidelines.” Def. Rule 56.1 Stmnt. ¶ 14. They allege, however, that the Funds invested only in U.S. government securities, U.S. Treasury issues, various other government-backed securities or bonds, Guaranteed Insurance Contracts, money market and mutual fund accounts with accredited institutions and taxi-medallion loans through Metran Funding. Id. ¶ 13 (containing no cites to the evidentiary record). Plaintiffs respond to this alleged “unwritten policy” by arguing that the fact that these investments were made does not mean they were made pursuant to an investment policy and that the above policy would in any event be imprudent. That no written policy existed is not in dispute; 'neither is the nature of the Funds’ investments (discussed more fully below). What is in dispute is whether the absence of such a policy and the ad hoc nature of the Funds’ investment decisions violates ERISA’s fiduciary duty provision. ERISA does not contain a specific requirement that a written investment policy be maintained by the trustees. I find, at least in this instance, that such a policy is necessary to insure that the plan investments are performing adequately and meeting the actuarial, liquidity and other needs of the Funds. Support for this proposition is found in Department of Labor regulations. The maintenance by an employee benefit plan of a statement of investment policy designed to further the purposes of the plan and its funding policy is consistent with the fiduciary obligations set forth in ERISA § 404(a)(1)(A) and (B).... For purposes of this document, the term ‘statement of investment policy’ means a written statement that provides the fiduciaries who are responsible for plan investments with guidelines or general instructions concerning various types or categories of investment .management decisions .... A statement of investment policy is distinguished from directions as to the purchase or sale of a specific investment at a specific time 29 C.F.R. § 2509.94-2(2). While this regulation states only that a written investment plan is “consistent” with ERISA’s fiduciary duty requirements, in the circumstances here, absence of any plan constitutes a breach of fiduciary duty. Further, I hold that on the facts of this ease there are no genuine issues of material fact with respect to the allegations that the trustees had no investment policy and that the absence of such a policy, coupled with the other acts and omissions by the trustees of these Funds, constituted a breach of fiduciary duty. 3. Investment Advisers Count five of the Amended Complaint alleges that defendants breached their fiduciary duties by failing to hire an investment adviser or investment manager. Amended Compl. ¶41. The trustees admit that they did not retain the services of an investment adviser or investment manager during the period in question. Def. Response to PL Rule 56.1 Stmnt. ¶ 1; Pl. Rule 56.1 Stmnt. ¶¶ 83, 85. Moreover, defendant trustees admit that they lack expertise and substantial experience in the field of investments. Def. Response to Pl. Rule 56.1 Stmnt. ¶ 1; see PL Rule 56.1 Stmnt. ¶ 80; see also Zaceherio Depo. at 41-42; Pasqualone Depo. at 34, 43-44; Gonzalez Depo. at 34; Finley Depo. at 14-15. As with adoption of a written investment policy, there is no specific statutory or regulatory requirement that employee benefit plans hire an investment adviser. The Court of Appeals for this Circuit, however, has recognized that in certain circumstances trustees have a “duty to seek outside assistance” as part of their fiduciary obligations. Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir.1984). Katsaros involved a situation much like the one at issue here, at least as far as the trustees’ investment acumen was concerned: At trial, [the trustees’ CPA] testified that neither he nor anyone on the Fund’s staff had sufficient training to express an opinion as to the soundness of the loan. None of the trustees had an accounting or banking background. They were wholly unequipped personally to analyze the figures presented to them to find out whether any serious financial problems were faced by the prospective borrower. They lacked any expertise in such important matters as capital adequacy, quality of assets, liquidity, the value of the bank’s stock, and the like____ No effort was made to obtain independent professional assistance or analysis of the financial data presented to them. Id. at 275. In such circumstances, where the trustees lack the requisite knowledge, experience and expertise to make the necessary decisions with respect to investments, their fiduciary obligations require them to hire independent professional advisors. See United States v. Mason Tenders Dist. Council of Greater New York, 909 F.Supp. 882, 886 (S.D.N.Y.1995) (Mason Tenders) (“a trustee has a duty to seek independent advice where he lacks the requisite education, experience and skill”); Trapani v. Consolidated Edison Employees’ Mutual Aid Society, 693 F.Supp. 1509, 1516 (S.D.N.Y.1988) (“A fiduciary who is ill-equipped to evaluate a claim may have a duty to seek outside assistance.”); see also 29 U.S.C. § 1104(a)(1)(B) (standard of care measured against “prudent man ... familiar with such matters”); Katsaros, 744 F.2d at 279 (“[a] trustee’s lack of familiarity with investments is no excuse”). This does not mean that all trustees must hire investment advisors or asset managers with respect to every investment decision. Indeed, ultimate decision-making authority and responsibility for investments rests with the trustees. See Mason Tenders, 909 F.Supp. at 886 (trustee must make own decision based on advice). The need for independent advice will depend on the factual circumstances of each ease. Here, it wás essential and totally lacking. Such assistance can come in many forms — it can encompass an overall investment strategy; advice with respect to particular proposed investments or delegation of day-today investment authority with appropriate oversight. Nothing like that happened here and the trustees were without any basis by which to' measure the wisdom or propriety of any particular investment. The allegations are not that a particular investment decision was flawed. Rather, plaintiffs’ challenge is to the process by which such decisions were made, a process characterized by an astounding naivete evidencing a lack of basic investment techniques and knowledge. While in other circumstances the failure to hire an investment advisor might not be actionable, under the circumstances here present it is another facet of a pattern and practice that can only be characterized as the total abdication of their responsibilities as trustees to act as the guardians of Local 966 members’ property. 4. Investigation of Fund Investments Plaintiffs also allege that the trustees breached their fiduciary obligations by failing to properly investigate proposed fund investments. Amended Compl. ¶43. It is by now black-letter ERISA law that “the most basic of ERISA’s investment fiduciary duties [is] the duty to conduct an independent investigation into the merits of a particular investment.” In Re Unisys Savings Plan Litig., 74 F.3d 420, 435 (3d Cir.), cert. denied, — U.S. —, 117 S.Ct. 56, 136 L.Ed.2d 19 (1996). “The failure to make any independent investigation and evaluation of a potential plan investment” has repeatedly been held to constitute a breach of fiduciary obligations. Whitfield v. Cohen, 682 F.Supp. 188, 195 (S.D.N.Y.1988); see Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 918 (8th Cir.1994) (“a fiduciary is obligated to investigate all decisions that will affect the pension plan”); Mason Tenders, 909 F.Supp.. at 887 (“[t]he failure to make any independent investigation and evaluation of a potential plan investment is a breach of fiduciary obligations”). Moreover, the' ERISA- regulations dealing with fiduciary responsibility provide: (1) With regard to an investment or investment course of action taken by a fiduciary of an employee benefit plan pursuant to his investment duties, the requirements of section 404(a)(1)(B) of the Act ... are satisfied if the fiduciary:, (i) Has given appropriate consideration to those facts and circumstances that ... the fiduciary knows are relevant to the particular investment or investment course of action involved, including the role the investment or investment course of action plays in that portion of 'the plan’s investment portfolio with respect to which the fiduciary ha,s investment duties. 29 C.F.R. § 2550.404a-l(b). The regulation then goes on to define the “appropriate consideration” that is to be given to the facts and circumstances: “[Appropriate consideration” shall include .... [a] determination by the fiduciary that the. particular investment or investment course of action is reasonably designed, as part of the portfolio ... to further the purposes of the plan, taking into consideration the risk of loss and- the opportunity for gain (or other-return) associated with the investment or investment course of action, and [consideration of ... (A) [t]he composition of the portfolio ... (B) [t]he liquidity and current return of the portfolio relative to the anticipated cash flow requirements of the plan; and (C) [t]he projected return of the portfolio relative to the funding objectives of the plan. Id. As the above regulation makes clear, trustees must investigate proposed investments with regard to risk and return as well as appropriateness in light of the composition and aims of a funds’s portfolio. “The court’s task is to inquire whether the individual trustees, at the time they engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment.” Katsaros, 744 F.2d at 279 (quotation omitted). ' An examination of the record here establishes that defendants most definitely did not do so and rather that they completely failed to meet their investigatory duties with respect to a variety of Fund investments. The, trustees repeatedly made investments — sometimes totalling over 25% of the Pension Fund’s assets — without any independent investigation, but based solely on the advice of a broker, whose credentials they never reviewed. From 1989 through June 1994 there existed an investment subcommittee in both Funds consisting of one Employer and one Union Trustee. Def. Response to PI. Rule 56.1 Stmnt. ¶ 1; PI. Rule 56.1 Stmnt. ¶ 91. The broker, David Sigman, would telephone (or on occasion, write) the Fund Manager, John Tierney, with a suggested investment. Sigman Depo. at 51; Tierney Depo. at 34 — 35, 141-42, 474. Tierney would then convey the recommendation to the subcommittee members. Tierney Depo. at 35; Zac-cherio Depo. at 57; Smith Depo. at 147-48. The subcommittee would not meet, but rather caucus by phone and decide whether to accept-the recommendation and proceed with the investment. Zaccherio Depo. at 40; Gonzalez Depo. at 106; Sigman Depo. at 50; Smith Depo. at 146-49. While the trustees approved virtually every single security recommended by Sigman, Tierney Depo. at 39, there is not a single written line evidencing any analysis or investigation into the risks involved in, or the wisdom of, a proposed investment. Tierney Depo. at 70-72. Moreover, Sigman did not provide the subcommittee members with written material upon which they could base a meaningful decision with respect to his choices. Sigman Depo. at 73-74; Tierney Depo. at 43, 141-42; Gonzalez Depo. at 76; Finley Depo. at 18-19. All the while, the trustees never monitored Sig-man’s performance nor did they question, inquire into or know the extent of the commissions he was earning. Zaccherio Depo. at 49-50; Def. Response to PI. Rule 56.1 Stmnt. ¶ 1; PI. Rule 56.1 Stmnt. ¶¶ 98,100. Particularly shocking and at the same time illuminating is the decision by the trustees to purchase $8.6 million in Collateralized Mortgage Obligations (“CMO”). The investment was recommended by Sigman in a letter dated March 21, 1994 and was described as follows: “I recommend the purchase of [a] collateralized mortgage obligation yielding 7.5% with an average life of 9.5 years backed by the Federal National Mortgage Association. Should interest rates fall, the average life may shorten as [sic] if interest rates rise, the average life may lengthen.” PI. Exh. K. The trustees approved the transaction the very next day. Id. While this single investment constituted over 25% of the entire Pension Fund, not a jot exists to demonstrate any deliberation or investigation as to the prudence of such an investment. Another example of the trustees’ lack of basic investigation is their failure to investigate the prudence, safety or competitive return of the $5-6 million they regularly invested in second mortgages on taxis. See generally PI. Rule 56.1 Stmnt. ¶¶ 126-27,132-33. On this record, there is no genuine issue of fact as to whether the trustees fulfilled their fiduciary obligations to investigate the merit, structure and prudence of the various investments they made. Indeed, their modus op-erandi — blind reliance on a broker whose livelihood was derived from the commissions he was able to garner — is the antithesis of such independent investigation. 5. Monitoring the Pension Fund’s Solvency In their seventh cause of action plaintiffs allege that the trustees’ failure to monitor the Pension Fund’s solvency and adjust benefit levels and employers’ withdrawal liability accordingly also constituted a breach of their fiduciary obligations. Amended Compl. ¶¶ 45-47. Failure to monitor a fund’s solvency and adjust levels, if proved, constitutes a breach of fiduciary duty. Gruby, 838 F.Supp. at 825, 829 (allegations of failure to reduce benefit levels in pension fund states claim for breach of fiduciary duty); see also Dippel v. Joint Bd. of Trustees of the Operating Engineers Trust Fund, No. 80-0271, 1982 WL 2085 (D.D.C. May 6, 1982) at *7 (“The Board obviously retains the discretionary authority and indeed the fiduciary obligation to alter existing types and levels of medical benefits available under the Plan when the financial solvency of the Fund so requires.”) (dicta); cf. Baum v. Nolan, 853 F.2d 1071, 1074-75 n. 2 (2d Cir.1988) (possibility that payment of pension benefits may affect fund’s solvency is matter of fiduciary duty) (dicta). There can be no question that the Pension Fund’s solvency worsened with each passing year. A simple examination of the Pension Fund’s minutes reveals the following: In 1989, the ratio of costs to contributions stood at a troubling $1.35/$1.00. Pension Fund Mins. Dee. 18, 1990 at 6. For the first 9 months of 1990 that figure stood at $1.48/ $1.00. Id. By 1991, the figure grew to $1.78 spent for every dollar of contribution. Pension Fund Mins. Dec. 16, 1992 at 5. The disparity between income and expenses continued to rise, reaching $1.93/$1.00 in 1992 and a staggering $2.09/$1.00 for the first part Of 1993. Pension Fund Mins. Oct. 4, 1993 at 5. Notwithstanding these increasingly alarming figures about the Fund’s solvency, the trustees did nothing, except to investigate a risky letter-of-credit investment that was never consummated. Tierney Depo. at 92, 120, 125-26, 128, 351-52. After the IRB/ IBT trusteeship was imposed on Local 966, the new Union Trustees repeatedly suggested that the Fund hire an investment adviser for the Pension Fund, suggestions which were just as repeatedly rejected by the Employer Trustees. See Pension Fund Mins. June 23, 1994 at 2; July 24, 1995 at 5. No change was made in benefit levels nor was any change made in employers’ withdrawal liability. As of January 1, 1995, the Fund faced an unfunded vested liability in excess of $13 million. See PL Exh. LLL. In light of this clear record, there can be no doubt but that the trustees breached their fiduciary duty by faffing to take action to correct the growing problem with the Pension Fund’s solvency. D. Selecting Service Providers Plaintiffs’ ninth cause of action alleges that the trustees breached their fiduciary obligations by failing to exercise due diligence in the selection of service providers to the Health Fund. Amended Compl. ¶¶ 52-55. These allegations are particularly disturbing because so many of the Funds’ service providers were shown to have made payments to relatives of defendant McCarthy for unidentified consulting services. In effect, this claim is a variant on the allegations discussed above regarding the trustees’ failure to investigate the prudence of their investments. Looking at both claims in a light most favorable to the trustees, they displayed the same lack of diligence in approving relationships with the Funds’ service providers as they did in investing Fund assets. Failure to utilize due care in selecting and monitoring a fund’s service providers constitutes a breach of a trustees’ fiduciary