The former pension fund manager who once lived in a multimillion-dollar house in Bourbon County was sentenced Wednesday to more than three years in prison for money laundering and the theft of $600,000 from two employee pension plans.
The 41-month sentence imposed on George S. Hofmeister by U.S. District Judge Karen Caldwell was five months greater than what a government prosecutor had recommended. Jeffrey Darling, Hofmeister's court-appointed attorney, had asked for no jail time after his client pleaded guilty in October.
Caldwell said probation was not appropriate in the case where Hofmeister took someone else's money and used it as his own. The financial maneuvering that Hofmeister did to "obfuscate the true nature of the crime" also influenced the judge.
"I am sorry for my actions that caused any harm," Hofmeister, 66, said in open court before sentencing. He had prepared a written statement but Darling said Hofmeister declined to read it because he didn't think he could do so without breaking down. Hofmeister repeatedly wiped tears from his eyes during the proceeding in Lexington.
The government seeks $275,000 in restitution; Darling says the amount is $200,000. Judge Caldwell will decide the amount at a hearing sometime before June 28, the date Hofmeister must report to the Federal Bureau of Prisons.
It was an astonishing fall for Hofmeister, who once lived in a $14 million house (12 bedrooms and 13 full bathrooms) in Bourbon County. The house was sold last year for $3.1 million because of default on a mortgage. Hofmeister's family's possessions were sold at auction to pay for food, gas and living expenses, Darling wrote in a sentencing memorandum.
Hofmeister's Highland Farms in Bourbon County bought the breeding rights to Real Quiet five weeks before the horse won the 1998 Kentucky Derby. Real Quiet also won the 1998 Preakness Stakes. The horse died in 2010.
Today, Hofmeister lives in a two-bedroom Florida condo owned by his children and has a negative net worth, Darling wrote in a court document.
Hofmeister went from giving to God's Pantry and University of Kentucky Opera Theatre to "wrapping coins to have enough money to go to a McDonald's drive-through," Darling wrote.
In 2009, Hofmeister became the trustee of two pension plans called the Hillsdale Salaried Plan and the Hillsdale Hourly Plan. The plans were established to benefit the employees of companies controlled by Hofmeister family trusts.
The indictment said Hofmeister invested assets from the plans into a business venture called SIF Technology and then diverted those assets for his own use. He misused plan assets that were loaned to SIF in much the same way, Assistant U.S. Attorney Elaine Leonhard said in a sentencing memorandum.
The fledgling company failed and the pension plans, which were already in financial distress, were rendered insolvent. Darling argues that the plans are funded.
The only beneficiaries of the "deal" were Hofmeister, his companies, and his children's trusts, Leonhard wrote. She added that Hofmeister's business model was "built on unfulfilled promises and misappropriation of money that did not belong to him."
"Like many of his other business ventures, the defendant's mismanagement — and disregard for — the plans' assets left a trail of debt, default and disputes," Leonhard wrote.
Darling, on the other hand, wrote that Hofmeister's efforts in buying and fixing distressed companies, such as auto parts manufacturers, saved more than 18,000 jobs during his career.
Darling wrote that Frederick Arthur "Fritz" Henderson, a former CEO of General Motors, told Hofmeister in 2009 "if you had not bought the companies you did late last year and this year, GM would not have been able to make cars."
A Ford executive expressed the same sentiment to Hofmeister in early 2010, Darling wrote.
Darling argued in court that that sending Hofmeister to prison would accomplish no purpose. "I don't think this court should force him to do one day in prison," Darling said.
Darling argued that it is customary for trustees of pension plans to receive 1 percent to 2 percent compensation of the income derived from managing them. So Hofmeister could have taken a legally acceptable fee of between $2.5 million to $5 million, but he chose to take no fee at all, Darling said.
Furthermore, Darling said Hofmeister has no prior criminal history, and, thanks to a judgment in a related civil case, he is permanently restrained from serving as a fiduciary in any other pension plan. That is punishment enough, Darling argued.
Caldwell agreed that Hofmeister's "chances to engage in his chosen profession are pretty much gone."