A judge has denied Wells Fargo’s request to dismiss a class-action lawsuit that claims the mega bank mismanaged its more than $40 billion 401(k) plan.
Brought on behalf of participant Yvonne Becker in U.S. District Court for the District of Minnesota, the class-action lawsuit asserts that some high-level executives at Wells Fargo — who were named as the retirement plan’s fiduciaries — selected and retained 17 Wells Fargo proprietary funds, many of which performed below the benchmark that the bank had picked “as an appropriate broad-based market index for each Wells Fargo Fund.”
Becker further alleges that the Wells Fargo Funds included “newly launched funds that lacked a performance history necessary to evaluate them, and that the Wells Fargo Funds charged greater fees than similar non-proprietary funds.”
Michelle Yau, a partner at Cohen Milstein in Washington and chair of the firm’s Employee Benefits/ERISA practice group, who represents Becker and the other plaintiffs, told ThinkAdvisor in a recent interview that she’s “glad to see” that Judge Donovan Frank, in denying Wells Fargo’s request to dismiss the case, “understood why the case matters.”
Yau said: “You have 350,000 current and former Wells Fargo employees who, for many of them, their only retirement savings is their 401(k) plan. … They don’t get to pick the funds in the 401(k) plan, so they’re relying on the fiduciaries of their plan to pick prudent and loyal options; and ERISA requires it.”
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More Allegations
The suit also asserts that because of the enormous size of the plan, Wells Fargo should have been able to obtain “superior investment products at very low cost but instead chose proprietary products to bolster their own salaries by increasing fee revenue and providing seed money to newly created Wells Fargo Funds.”
“Wells Fargo doesn’t have to have its high-level executives pick the funds for the plan,” Yau told ThinkAdvisor. “It decides to do that. It set up its plan so that the fiduciaries who pick the investment options are all high-level executives — their purpose in their day job is to maximize profits.”
Yau explained, “The problem is, when you’re managing a $50 billion plan and you pick Wells Fargo funds … you really have got to scrutinize your decision-making because of the vulnerability of a conflict of interest.”
Plaintiffs are seeking to have their losses restored that they suffered from being in funds that performed poorly, she said.
The next stage in the case is summary judgment and then trial, Yau explained, “which come up in pretty quick succession.”
A Massachusetts federal court on Friday certified classes for two groups of buyers accusing Ranbaxy Pharmaceuticals of delaying generic versions of three different drugs by manipulating the regulatory approval system.
U.S. District Judge Nathaniel M. Gorton issued an order granting class certification requests from direct purchasers, including drug wholesalers, and from end-payors, such as health care plans that indirectly paid for the treatments. The order certified separate classes for both groups of buyers covering each drug involved in the case — anti-AIDS drug Valcyte, high blood pressure drug Diovan and reflux medication Nexium.
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Proposed class actions from the two groups of buyers were consolidated in Massachusetts federal court in April 2019. The case accuses Ranbaxy of filing new drug applications with the Food and Drug Administration in the early 2000s for generic versions of Valcyte, Diovan and Nexium that contained missing, incorrect or fraudulent information.
Ranbaxy allegedly filed the applications in order to secure valuable exclusivity periods, meaning it would be the only generics competitor to each of the branded drugs for a set period of time. But the company ultimately failed to gain approval for its generics because of the faulty information supplied to the FDA.
The buyers contend Ranbaxy wrongly obtained the exclusivity periods and that this delayed the eventual launch of generic versions of all three drugs by other manufacturers, resulting in higher prices. The suit includes claims for violation of the Racketeer Influenced and Corrupt Organizations Act, federal and state antitrust laws and state consumer protection laws.
The litigation followed investigations into Ranbaxy by the FDA and U.S. Department of Justice that resulted in guilty pleas and a $500 million fine against the drugmaker for lying to regulators and selling drugs that fell short of federal safety standards.
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The direct buyers are represented by Hagens Berman Sobol Shapiro LLP, Hilliard & Shadowen LLP, Radice Law Firm, Sperling & Slater PC, Kessler Topaz Meltzer & Check LLP, Wexler Wallace LLP, Cohen Milstein Sellers & Toll PLLC and Nussbaum Law Group PC.
The complete article can be viewed here.
A federal court judge in Minneapolis rebuffed an attempt by Wells Fargo & Co. and other defendants to dismiss an ERISA complaint filed by a participant in a company 401(k) plan.
U.S. District Court Judge Donovan Frank on May 12 rejected every defense submitted in the case of Yvonne Becker vs. Wells Fargo Co. et al., on allegations ranging from charging excessive fees to offering poor-performing investments to engaging in prohibited transactions under ERISA. Ms. Becker, a plan participant and former employee, sued in March 2020.
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The judge noted that Ms. Becker, in her complaint, provided benchmarks for assessing plan investments. These benchmarks “are sufficiently meaningful to provide proper comparison to the challenged funds with respect to both performance and fees,” Mr. Frank wrote.
The judge also rejected defendants’ request to dismiss Ms. Becker’s claim that they violated ERISA’s prohibited transactions rule.
She alleged they “caused the plan to repeatedly purchase property from Wells Fargo, Wells Fargo Bank or both, which hold legal title to Wells Fargo funds,” the judge wrote. She also alleged that these defendants plus another defendant, Galliard Capital Management, caused “the repeated transfer of plan assets directly, indirectly or both” to each other “in the form of various direct or indirect fees,” the judge wrote. Galliard is an investment adviser and fiduciary to the 401(k) plan, according to court documents.
Reviewing the complaint and the defendants’ response, the judge concluded that “Becker has plausibly pled that defendants engaged in transactions prohibited under ERISA.”
The Wells Fargo & Co. 401(k) Plan had assets of $48.2 billion as of Dec. 31, 2019, according to the latest Form 5500.
Read Judge denies Wells Fargo bid to dismiss ERISA suit.
A federal district court judge has moved forward a lawsuit alleging that Wells Fargo 401(k) plan fiduciaries should have been able to obtain superior investment products at a very low cost but instead chose proprietary products for their own benefit, increasing fee revenue for the company and providing seed money to newly created Wells Fargo funds.
The lawsuit, filed last March, claims that upon the creation of the Wells Fargo/State Street Target CITs (Target Date CITs) in 2016, the committee defendants added the collective investment trusts (CITs) to the plan even though the funds had no prior performance history or track record which could demonstrate that they were prudent. Despite the lack of a track record, the committee defendants “mapped” nearly $5 billion of participant retirement savings from the plan’s previous target-date option into the Target Date CITs.
In addition, the plaintiff alleges the committee defendants used the plan’s assets to seed the Wells Fargo/Causeway International Value Fund (WF International Value Fund), as evidenced by the fact that the plan’s assets constituted more than 50% of the total assets in the fund at year-end 2014. “Without such a substantial investment from the plan, Wells Fargo’s ability to market its new, untested fund would have been greatly diminished,” the complaint states.
The lawsuit further alleges that plan fiduciaries selected and retained for the plan 17 Wells Fargo proprietary funds, many of which underperformed the benchmark that the defendants selected as an appropriate broad-based market index for each fund.
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“The court finds that [the plaintiff’s] allegations are far more than general assertions, and that accepted as true, show that defendants engaged in prohibited transactions,” Frank wrote in his opinion. “The court similarly finds that whether any prohibited transaction exemption applies to [the plaintiff’s] claims is an affirmative defense that cannot be resolved on a motion to dismiss.”
Two former employees of corporate travel company World Travel Inc. filed a lawsuit accusing the trustee of their employee stock ownership plan of mishandling a $200 million stock transaction that allegedly hurt workers’ retirement savings, according to a proposed class action filed in the Eastern District of Pennsylvania.
The lawsuit, filed Tuesday by Shari Ahrendsen and Barry Clement, challenges a 2017 transaction in which World Travel—which isn’t named as a defendant—became 100% employee-owned through an employee stock ownership plan. Ahrendsen and Clement say plan trustee Prudent Fiduciary Services LLC failed to conduct proper due diligence on the stock sale, which caused employees to overpay for World Travel’s stock while taking on hundreds of millions of dollars in debt.
The $200 million purchase price included a “control premium” meant to account for the plan’s 100% ownership interest in World Travel, but the plan was never given control of the company’s board of directors, Ahrendsen and Clement say. And the due diligence that Prudent Fiduciary conducted in connection with the transaction was “less extensive and thorough than the due diligence performed by third-party buyers in corporate transactions of similar size and complexity,” they say.
“Due to the Plan’s overpayment, the Plan’s participants, including Plaintiffs, received diminished stock allocations, saw their Plan take on excessive debt to finance the Transaction, and suffered losses to their individual Plan accounts,” according to the complaint.
- Bank defeated similar suit in Eighth Circuit in 2018.
- But this lawsuit has more details, benchmarks, judge says.
Wells Fargo & Co. must face a proposed class action challenging the affiliated funds in its $40 billion 401(k) plan after a Minnesota federal judge on Wednesday ruled that plan participants provided meaningful benchmarks showing how the banking giant favored its own funds over cheaper and better-performing alternatives.
Yvonne Becker’s complaint relies on the same benchmarks set by Wells Fargo to argue that the bank kept its own funds in the 401(k) plan despite multi-year periods of underperformance, Judge Donovan W. Frank of the U.S. District Court for the District of Minnesota held. Becker’s “numerous and specific allegations” support her claim that Wells Fargo’s plan management was imprudent and disloyal under the Employee Retirement Income Security Act, he said.
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Frank’s decision comes three years after Wells Fargo defeated similar allegations in the U.S. Court of Appeals for the Eighth Circuit. But unlike the allegations rejected by the Eighth Circuit, Becker’s complaint provides meaningful benchmarks by which to assess the Wells Fargo funds, because it relies on “the very benchmarks that Defendants themselves selected for comparison,” Frank said.
He also allowed Becker to move forward with claims under ERISA’s prohibited transaction rules based on the plan’s alleged purchase of affiliated funds from Wells Fargo.
Becker’s lawsuit challenges the Wells Fargo target-date collective investment trusts in the company’s 401(k) plan, which are the default options for participants who don’t select their own investments. Wells Fargo transferred about $5 billion worth of plan assets to these target-date trusts in 2016, even though the trusts were newly established and had “no prior performance history or track record which could demonstrate that they were appropriate,” Becker claims.
Becker is represented by Cohen Milstein Sellers & Toll PLLC and Zimmerman Reed LLP.
A proposed class of World Travel Inc. employees has accused Prudent Fiduciary Services and its owner of overpaying for a $200 million stock buyback from the company’s founders by saddling the employee ownership plan with “tens of millions” of dollars in debt.
The complaint, filed by employees of the travel agency on Tuesday in Pennsylvania federal court, claims plan manager Prudent and owner Miguel Paredes mishandled a 2017 stock buyback by allowing three stockholders, World Travel founders James A. Wells, James R. Wells and Richard G. Wells, to sell their shares back to Prudent at above market value while retaining control of the company board even though the transaction made World Travel entirely employee-owned.
Prudent purchased 19,860,000 World Travel shares from the founders — each of whom owned 10% or more of World Travel — for $200 million through a loan of the same amount to Prudent from World Travel to be paid off over 45 years with an annual 2.64% interest rate, according to the complaint, which alleges the buyback violated the Employee Retirement Income Security Act.
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World Travel is a travel agency specializing in corporate travel management since 1983 and, according to the complaint, has remained privately traded since its founding.
The investors bring claims for causing and engaging in transactions forbidden by ERISA and U.S. Code 23 and for breach of fiduciary duty. They seek a declaration against Prudent and Paredes affirming the trustees’ conduct, confirmation of an ERISA violation and a range of financial damages intended to reimburse the employees for investment value and the cost of the suit
The U.S. government will pay nearly $44 million to settle an age-discrimination case filed 16 years ago on behalf of hundreds of workers who missed out on federal pensions after their jobs were outsourced.
Lawyers for the 761 workers say the Federal Aviation Administration and the Transportation Department decided to outsource the jobs because many of the employees were older than 40 and were, or soon would, become eligible to retire with full federal retirement benefits.
They worked as flight service specialists — air traffic controllers who give pilots of private planes information about weather, routes and emergency help. In 2005, the FAA gave Lockheed Martin a contract to run the specialists’ flight service stations in every state except Alaska.
By an act of Congress, about 100 specialists who were within two years of retirement were allowed to stay at FAA and keep their pensions, but 1,900 others, most of them over the age of 40, moved to Lockheed. Some of them sued.
In a $43.8 million settlement announced Wednesday, 25 individuals will get enough service credit to qualify for an air traffic controller’s retirement. The others will get enough to cover lost retirement benefits from 2016 through 2020, according to the agreement.
“We hope this will be a cautionary reminder to federal employers and other employers that, as we have an increasingly aged workforce, employers should be extra careful to avoid making personnel decisions like layoffs because of age,” said Joseph Sellers, lead attorney for the workers.
Almost 700 former agency employees whose jobs were outsourced in 2005 will share in the settlement.
The Federal Aviation Administration has agreed to pay $44 million to resolve a long-standing lawsuit brought by former employees who alleged that their jobs were outsourced because of their age, a settlement announced Wednesday that their lawyers say is the largest of its kind.
The case was filed in 2005, when the FAA decided to hand over the work of about 2,000 employees, known as flight services specialists, to a private company. FAA officials, including the head of the agency at the time, were open about the aging specialist workforce being a factor in the outsourcing deal, according to evidence presented in the lawsuit.
But the case languished in the courts for years as one judge retired and the law firm that originally represented the employees was closed. With the former FAA employees reaching retirement age, a new team of lawyers began hashing out a settlement with the government last year.
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Joseph Sellers, a partner at law firm Cohen Milstein, which joined the case in 2016, described the financial harm faced by the former employees as “brutal.”
“Suddenly their pension investment was ripped away from them,” he said.
The oldest Millennials became eligible to sue for age discrimination this year.
Recouping that retirement pay became the focus of the lawsuit. The $44 million settlement fund will be shared by 646 former employees or their estates. An additional 25 plaintiffs will have their pensions adjusted upward.
Sellers acknowledged that the payouts won’t cover everything the former employees lost, but he said the case was unusual because it was not pursued as a class-action. That meant that even had they won, each of the 671 plaintiffs would have had to have a separate trial to determine what they were owed, potentially extending the case several more years. With the former employees aging, Sellers said it made sense to strike a deal.
“You don’t recover 100 percent when you’re settling a case,” Sellers said. “Our clients faced a tough choice.”
Although appellate court judges threw out some claims against the bank, they said that market manipulation allegations were “plausible.”
Credit Suisse is having another rough week.
A U.S. Appeals Court reopened a 2018 case alleging that Credit Suisse had engaged in market manipulation of some exchange-traded notes that short the VIX, a popular proxy for volatility.
The reopened case comes as the European Commission announced on Wednesday that it had fined the bank and three others, alleging that they had formed a “cartel in the secondary trading market,” and as the United States Senate Finance Committee said it had launched a probe into Credit Suisse. The Finance Committee is looking at whether the bank allowed wealthy individuals to shield their assets from the government, in violation of a 2014 plea agreement. (Commenting on the EC, a spokesman said in an emailed statement that, “Credit Suisse continues to believe that the single former employee whom the EC criticized did not engage in anti-competitive conduct.” The bank intends to appeal the decision.)
The Swiss bank is also still reeling from taking significant losses related to the blow up of Archegos, the heavily leveraged family office of former hedge fund manager Bill Hwang.
Credit Suisse Bought Futures Contracts When Volatility Spiked
The plaintiffs — a group of investors led by Set Capital — allege that Credit Suisse issued exchange-traded notes shorting the VIX, shorthand for the Cboe Volatility Index, while also hedging against those notes, resulting in a liquidity squeeze that then eroded the value of the group’s investments.
The notes are unsecured debt securities sold by Credit Suisse and formally called VelocityShares Inverse VIX Short Term Exchange Traded Notes.
In other words, the investors were using unsecured debt to short the volatility index, which spiked in 2011, 2015, and 2016, according to the appeal.
The appellate judges’ decision said that during these three times, Credit Suisse bought VIX futures contracts to hedge against potential losses on the ETNs. But with insufficient liquidity in the futures markets, Credit Suisse caused prices to spike, and the value of the XIV notes to plummet. The U.S. Appeals Court for the Second Circuit said, “If proven at trial, this alleged conduct was manipulative under our precedents.”
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“We believe that Credit Suisse and its former CEO intentionally misled and manipulated investors so that they could profit while investors suffered devastating losses, and we are pleased that this critical case is moving forward,” said Michael B. Eisenkraft, a partner at Cohen Milstein who represents some of the plaintiffs, in a statement Wednesday.