Compliance

DST Systems and Ruane Advisory Named in ERISA Suit

Defendants pursued an “exceptionally imprudent investment strategy” with respect to a significant portion of the DST System retirement plan’s assets, plaintiffs claim, resulting in up to $100 million in avoidable losses.

By John Manganaro editors@strategic-i.com | September 19, 2017
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Yet another Employee Retirement Income Security Act (ERISA) challenge was filed in the U.S. District Court for the Southern District of New York, this one naming a host of defendants including the advisory committees of the DST Systems Inc. profit sharing and 401(k) plans.

The suit also names the advisory firm Ruane Cuniff & Goldfarb, Inc., as a defendant, as well as the compensation committee of the DST Systems board of directors.

Plaintiffs are participants in the DST Systems profit sharing and 401(k) plans, and they suggest their retirement program, with more than $1 billion invested, is in the top 1% in the U.S. in terms of assets. In terms of specific allegations, the text of the suit is similar to lawsuits filed against the Disney Corporation and FMC Corporation that have emerged in 2017.

“Defendants pursued an exceptionally imprudent investment strategy with respect to a significant portion of the plan’s assets,” plaintiffs claim, “They invested without any input or oversight by participants in the plan, and they failed to adequately monitor the investments of the plan and the fiduciaries pursuing this investment strategy. As a direct result and consequence of these imprudent investment decisions and related misconduct, the plan has suffered losses well in excess of $100 million.”

According to the text of the compliant, defendants “also breached their fiduciary duties by allowing unreasonable expenses to be charged to the plan for administration and selected/retained high-cost and poor-performing investments instead of other available and more prudent, alternative investments … These breaches of fiduciary occurred, at least in part, as a result of severe conflicts of interest between and among the fiduciaries of the DST plan that resulted in repeated prohibited transactions and acts of self-dealing, in violation of Section 406 of ERISA.”

Plaintiffs bring their action on behalf of the whole class of plan participants under ERISA Sections 409 and 502, to recover the following relief:

  • A declaratory judgment holding that the acts of defendants described violate ERISA and applicable law;
  • A permanent injunction against defendants prohibiting the practices described and affirmatively requiring them to act in the best interests of the participants;
  • Disgorgement and/or restitution of all payments and other compensation improperly received by Defendants, or, alternatively, the profits earned by defendants in connection with their receipt of such unlawful payments and other unlawful compensation;
  • Compensatory damages, attorney fees and other recoverable expenses of litigation; and
  • Such other and additional legal or equitable relief that the Court deems appropriate and just under all of the circumstances.

Defendant Ruane Cuniff & Goldfarb, Inc., the text of the ERISA challenge explains, is a Delaware-based corporation and registered investment adviser with its principal place of business in New York. The firm is an investment firm that served as an adviser and fiduciary to the DST Systems plan until approximately August, 2016, when its services to the plan were terminated.

According to plaintiffs, Ruane’s flagship fund, the Sequoia Fund, contained more than $25 billion in assets “until Ruane engaged in a misguided and reckless investment strategy that was focused upon pursuing investments in Valeant Pharmaceuticals International, Inc.”

NEXT: More from the text of the complaint