Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s

Investor Korine Brown is seeking class action status on behalf of those that also participated in General Motors Inc.’s Personal Savings Plan for hourly employees in her securities case against Fidelity Investments Institutional Operations Co. Inc. and Fidelity Management and Research Co. She is alleging breach of fiduciary duty. This is just the latest investment fraud case over Fidelity’s handling of money that came from planned assets, as well as against other 401k providers.

As of the end of 2011, the plan Brown has been a participant in contained about $46 billion in assets for over 100,000 account holders. The plaintiff claims that Fidelity Research breached its duty when it invested float income into Fidelity funds found in the plan menu.

Float income is money generated from redemptions, contributions, and transfers of planned assets when they are briefly put in in interest bearing accounts. Brown believes that Fidelity Investments Institutional Operations breached its duty when it used the float income, which she says is a plan asset, to take care of operating costs. She claims that Fidelity didn’t let participants and the fiduciaries tasked with administrating the plan know about how the float income was being used.

Her securities lawsuits says that the two Fidelity units had a fiduciary duty because they possessed discretion over plan assets. Rather than putting the float income into its own funds or using the money to pay for business expenses, it should have moved the money to the plan. Brown is alleging self-dealing that violates the Employee Retirement Income Security Act of 1974.

Meantime, a Fidelity spokesperson maintains that Fidelity’s practices comply with ERISA guidelines and that float income was not retained and the company did not get fees from managing the float.

The float income lawsuits against Fidelity started coming in after a federal judge ruled that ABB Inc., a retirement plan, was in breach of fiduciary duty when Fidelity paid bank fees with float income. Fidelity was told to pay $1.7 million, while ABB was ordered to shell out $35.2 million to pay for participant losses. They are appealing that ruling.

Another investor sues Fidelity over use of temporary funds, Investment News, April 30, 2013

Brown v. Fidelity Management and Research Company et al,

Brown v. Fidelity Management and Research Company et al, The Complaint (PDF)

More Blog Posts:
Not All Municipal Bond Issuers Are Adjusting Well to the SEC’s Efforts to Make the Market More Transparent, Institutional Investor Securities Blog, February 22, 2012

Former Fidelity Brokerage Reps Says They Were Pressured to Make Sales That Conflicted With CFP Ethic Codes, Stockbroker Fraud Blog, April 8, 2009