Week in Review
April 23, 2007
Investors Backlash Against 401(k)s Via Class-Actions
Investors are increasingly bringing dramatically worded lawsuits against 401(k) sponsors and fiduciaries for what they allege are shady fee practices, Mondaq reports. The inspiration for the lawsuits has come primarily from recent investigations by the Securities and Exchange Commission, Department of Labor and Congress into hidden or excessive fees.
Specifically, Congress and the SEC have pointed out that 401(k) consultants may be in revenue-sharing arrangements with the investment advisory firms whose products they recommend, without disclosing those arrangements. In addition, some of the lawsuits charge that plan fiduciaries don't offer investors less-expensive share classes as assets in a plan grow.
To date, the majority of the lawsuits have been filed in Illinois, although there are a few in Missouri, Connecticut and California-most of them aimed at Fortune 50 firms.
Although the majority of the lawsuits have been filed by one law firm, others are joining the fray, and scores of additional lawsuits are expected.
Ex-Bond Fund Manager Sues U.S. Treasury
A former MFS Investment Management bond fund manager has sued the U.S. Treasury to obtain access to their files that he says is critical to his defense in a case the Securities and Exchange Commission has brought against him, The Patriot Ledger reports. Steven Nothern filed the suit, claiming that under the Freedom of Information Act, he should have access to the documents.
Nothern sued the agency already, in February, asking a judge to order the Treasury to allow him to depose five of their officials. Nothern's case essentially claims that the government agency is stonewalling him to protect itself.
"We're disappointed that the Treasury department seems to wish to avoid disclosing embarrassing information that we believe is critical to Steve Nothern's defense," said his attorney, John Shope, of Foley Hoag. "It seems to me that the government is trying to blame Steve Nothern for its own mistakes."
A Treasury spokeswoman declined to comment for The Patriot-Ledger on the pending litigation.
The case against Nothern stems from a Treasury announcement on Oct. 31, 2001 that it would no longer issue 30-year bonds. The Treasury held a 9 a.m. press conference but said that the information would be embargoed until 10 a.m.
Peter Davis, a consultant whose clients included MFS, was at that press conference but left 30 minutes early to call clients with the news. Davis settled with the SEC in 2003, agreeing to pay $150,000.
The Commission then brought civil charges against Nothern and a Goldman Sachs economist, who, acting on Davis's tip, purchased 30-year bonds ahead of the 10 a.m. embargo. The SEC originally dropped its case against Nothern but then refilled it again in 2005.
Nothern said that not only had Davis left a voicemail message for him at around 9:40 that day, but a broker called at 9:30 to say there were rumors the Treasury would stop issuing 30-year bonds. Then, when he saw an announcement on the Treasury's website before 10 a.m., he began tracking the price of the bonds. Seeing them rising, he decided to buy some, not knowing about the embargo and believing the information to be public knowledge.
According to Nothern's lawsuit, the Treasury said it has 637 pages documenting what it did that day but won't release 272 of those pages. He also wants the Treasury to release a computer disc that will show when the Treasury posted the news on its website.
"Treasury has encouraged the SEC's prosecution of this action as a means of deflecting criticism from its many mistakes and misjudgments relating to the Oct. 31, 2001 announcement," Nothern's lawsuit states. "Because of Treasury's interest in placing all the blame for Oct. 31, 2001 on private parties like Nothern, it has an incentive to deny him the testimony and other information he needs to defend himself."
Ed Jones Offers Investors $127.5 Million Settlement
Edward Jones is proposing paying investors $127.5 million in vouchers to settle class-action lawsuits charging the firm with accepting revenue from mutual fund companies in exchange for recommending their funds, the St. Louis Post-Dispatch reports.
The firm would pay current customers $72.5 million in credit vouchers and past customers $55 million in cash.
Edward Jones investors filed lawsuits in federal and state courts two years ago after the firm paid $75 million in fines to Missouri, the Securities and Exchange Commission and the NASD.
The courts are scheduled to hold hearings on the proposal on July 20.
Fidelity Starts $200 Million Expansion Outside Dallas
As part of a $200 million expansion into Texas that will eventually employ 1,535 additional employees, Fidelity Investments recently signed a 10-year lease for 160,000 square feet in Lewisville, Texas, outside of Dallas to support as many as 1,000 employees, bizjournals.com reports.
Fidelity currently employs 2,900 people in Westlake, Texas. The company plans to build a 600,000-square-foot building at that location.