Compliance June 25, 2009

Smith Barney Fails to Remove Pension Case from Court

The U.S. District Court for the Southern District of Florida declined to enforce arbitration clauses contained in account agreements between the City of Delray Beach Police and Firefighters Retirement System and Smith Barney.
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According to the court’s decision, Chairman of the Retirement System’s board William Adams signed Pension Consulting Agreements and other documents for Smith Barney. The agreements have an arbitration clause that says contract disputes must be resolved by arbitration. Smith Barney moved to remove the case from court and have the court direct the board to proceed through arbitration.

However, the board argued that Adams lacked authority to execute the account agreements, and the court agreed. The board adopted agreements after approval of the full board and after submission to outside counsel. Any decisions under the agreement also had to be approved by the full board.

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The board noted that Smith Barney was present at its meetings where agreements were approved, and Adams was not held out as having an authority to execute modifications. The court said Smith Barney knew Adams lacked the authority and lacked a reasonable basis to assume he did.

Even if the board had held out Adams as having any authority, the court said, the Florida statues regarding police and firefighter pension boards, requiring majority vote to execute agreements, would prevail.

The pension system decided in July 2007 to bring a suit against its consultant if no settlement could be made (see “Pension Fund Files Complaint Against Adviser“). In its suit, the system alleges damages in an amount the board estimates to exceed $9 million.

The board also says it was “deprived of” more than $116,000 in connection with fixed-income securities transactions and incurred damages of greater than $90,000 in connection with alleged “excess charges.” The suit charges Smith Barney with breach of contract, breach of fiduciary duties, fraud, and negligent misrepresentations.

The pension system claims the consultant erroneously provided misleading investment reports to the board, misled the board regarding facts concerning performance of the fund’s investment managers and portfolio, and engaged in conflicts of interest in connection with fixed-income and equities securities transactions.

The latest court decision is available here.

Products June 25, 2009

First Citizens Launches Trust Services Platform via FundQuest

First Citizens Capital Management launched a FundQuest-powered platform for their wealth management business.
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The platform, Capital Manager, will use FundQuest’s back office and technology support services, First Citizens said in a release. FundQuest is a provider of turnkey managed account solutions.

The company said the new program combines the benefits of fee-based managed accounts with the latest Web-based client services technology allowing wealth advisers to concentrate their efforts on relationship management and new client business development.

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The platform features a detailed picture of a client’s financial position; the ability to outsource most administrative functions; and delivers access to sales collateral, investment research, and educational tools at any time of the day, according to the release.

Capital Manager also incorporates FundQuest’s investment models and a multi-manager solution, including mutual funds, exchange-traded funds (ETFs), separately managed accounts, and general securities.

 

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