Fidelity Investments Unit Faces ERISA Fiduciary Breach Claims
Fidelity Management Trust Co. has been named a defendant in a class action securities case under ERISA law. The plaintiffs claim that the Fidelity Investments unit is in fiduciary breach under ERISA because it included a stable value fund as an investment alternative for 401(k) plan accounts. They believe that low investment returns and high fees made the fund an unwise investment for participants in a 401(k) plan.
William Perry and James Ellis are the lead plaintiffs. At different times through the Barnes & Noble Inc. 401(k) plan, they were invested in the Fidelity Group Employee Benefit Plan Managed Income Portfolio Commingled Pool (MIP) fund. Plaintiffs believe that the high fees and poor results were because of the deliberate omissions and actions of Fidelity Management Trust as MIP’s fiduciary and trustee.
According to the complaint, before 2009 Fidelity executed an investment strategy that proved unsuccessful when it placed mortgage-backed securities, asset-backed securities, and collateralized loan obligations, and others securitize debt in the portfolio. MIP lost value when the financial crisis struck. After that, Fidelity changed up its asset allocation to lower risk to the fund’s wrap providers, including AIG Financial Products, Monumental Life Insurance Company, JP Morgan Chase Bank, State Street Bank and Trust, and Rabobank Netherland. Plaintiffs believe it is this conservative strategy that led to lower returns. They said that excessive fees, which were paid to wrap providers, hurt them.
Plaintiffs represented by the class include everyone involved in ERISA-governed plans that use the fund.
Billionaire In Court Again for Pension Fund Fraud
Ira Rennert, the billionaire industrialist, is once again accused of pension fraud. This time, the allegations involve $70 million and the fund of another family-controlled company. According to the allegations, Rennert was able to avoid responsibility for pension expenses of his RG Steel company when he lied to the Pension Benefit Guaranty Corporation. The independent US government entity, which is the plaintiff in this pension fraud case, said it would have terminated RG Steel’s pension plan if it had known that the company was about to be sold. If that had occurred, Rennert’s Renco Group would have had to take care of pension costs.
The government entity claims that Renco president, Ari Rennert, omitted key information and lied when he told PBCG that he would keep them updated of changes. A week later, about 25% of Renco was bought by Cerberus Capital and the former no longer had a pension liability. Renco denies the allegations.
It was just earlier this year that Rennert was found liable for looting another company of his for $118M. A federal court jury said that he would have to pay the failed company, Magnesium Corp. of America. about $41 million that he allegedly used to construct his estate in the Hamptons.
Dole Sued for Merger Fraud by Pension Funds
Two investment funds are suing Dole Food Co. for merger fraud. The Fire & Police Health Care Fund San Antonio and the San Antonio Fire and Police Pension Fund claim that the defendant’s executives committed fraud to lower the company’s price before a take-private deal in 2013. They said that these alleged actions hurt shareholders and kept sellers from getting fair value for their shares. It was just last week that Dole’s CEO David Murdock and General Counsel Michael Carter arrived at an agreement to pay investors $114M over the alleged fraud.
Fidelity targeted in another ERISA class-action suit, Investment News, December 17, 2015
Ira Rennert back in court over alleged $70M pension fraud, New York Post, December 7, 2015
Pension Funds Sue Dole Over Alleged Merger Fraud, Law360, December 10, 2015