Northern Trust says LA lawsuit has "no merit"
03 February 2012 Chicago
Image: Shutterstock
Northern Trust has denied wrong-doing in response to a lawsuit filed by the Los Angeles city attorney against the firm and Pension Consulting Alliance over securities lending cash collateral reinvestment losses.
LA's city attorney, Carmen Trutanich, filed the suit on behalf of LACERS, the Los Angeles City Employees鈥� Retirement System.
In a released statement, the firm said, "The lawsuit was not filed by LACERS, with whom Northern Trust has an excellent, long-standing and ongoing relationship. Northern Trust has acted as the primary custodian and as a securities lending agent for LACERS since 1991...The facts show that this civil lawsuit...has no merit...As LACERS鈥� lending agent, Northern Trust appropriately invested cash collateral according to LACERS鈥� own guidelines."
The Office of the City Attorney alleges that Northern Trust claimed that investments made by the company on behalf of LACERS were 鈥渓ow risk鈥� or 鈥渕inimised risk,鈥� including conservative, short-term, highly-liquid investments. However, from June 2006 until June 2008, Northern Trust failed to inform LACERS that it had changed its investment strategy in violation of common law fiduciary standards. The company allegedly provided no details of each specific investment in the City鈥檚 portfolio, including the current market value of each investment.
Other allegations made by the City involve claims that Northern Trust behaved inappropriately to stop a collapse in certain managed investment pools by convincing investors not to pull money, putting the firm's interest above the interest of individual pension funds.
Northern Trust points to the fact that LACERS did not lose money on its securities lending programme and, in fact, has earned tens of millions of dollars over the past 20 years. Moreover, even with losses incurred in 2008, the pension fund is ahead.
In 2008 LACERS experienced unexpected losses in its securities lending custom fund - which it created, established guidelines for and monitored. The losses were mostly due to investments in several fixed income securities. Those securities were highly rated, within investment guidelines set by LACERS, and held by pension funds throughout the country, said Northern Trust.
"The city attorney鈥檚 suit, brought years after the losses were incurred, is based on hindsight. It is premised on the legally deficient claim that Northern Trust should have predicted unprecedented events even though the markets as a whole had not," the firm said. "We regret that this meritless lawsuit will likely cost the LACERS pension plan, and the city of Los Angeles, millions of dollars in unnecessary legal fees and out of pocket expenses."
The lawsuit seeks full restitution for losses, as well as damages that LACERS sustained as a result of Northern Trust鈥檚 false claims, civil penalties up to $10,000 for each false claim, and $2,500 for each violation of the Business and Professions Code, and all fees and costs associated with the lawsuit.
LA's city attorney, Carmen Trutanich, filed the suit on behalf of LACERS, the Los Angeles City Employees鈥� Retirement System.
In a released statement, the firm said, "The lawsuit was not filed by LACERS, with whom Northern Trust has an excellent, long-standing and ongoing relationship. Northern Trust has acted as the primary custodian and as a securities lending agent for LACERS since 1991...The facts show that this civil lawsuit...has no merit...As LACERS鈥� lending agent, Northern Trust appropriately invested cash collateral according to LACERS鈥� own guidelines."
The Office of the City Attorney alleges that Northern Trust claimed that investments made by the company on behalf of LACERS were 鈥渓ow risk鈥� or 鈥渕inimised risk,鈥� including conservative, short-term, highly-liquid investments. However, from June 2006 until June 2008, Northern Trust failed to inform LACERS that it had changed its investment strategy in violation of common law fiduciary standards. The company allegedly provided no details of each specific investment in the City鈥檚 portfolio, including the current market value of each investment.
Other allegations made by the City involve claims that Northern Trust behaved inappropriately to stop a collapse in certain managed investment pools by convincing investors not to pull money, putting the firm's interest above the interest of individual pension funds.
Northern Trust points to the fact that LACERS did not lose money on its securities lending programme and, in fact, has earned tens of millions of dollars over the past 20 years. Moreover, even with losses incurred in 2008, the pension fund is ahead.
In 2008 LACERS experienced unexpected losses in its securities lending custom fund - which it created, established guidelines for and monitored. The losses were mostly due to investments in several fixed income securities. Those securities were highly rated, within investment guidelines set by LACERS, and held by pension funds throughout the country, said Northern Trust.
"The city attorney鈥檚 suit, brought years after the losses were incurred, is based on hindsight. It is premised on the legally deficient claim that Northern Trust should have predicted unprecedented events even though the markets as a whole had not," the firm said. "We regret that this meritless lawsuit will likely cost the LACERS pension plan, and the city of Los Angeles, millions of dollars in unnecessary legal fees and out of pocket expenses."
The lawsuit seeks full restitution for losses, as well as damages that LACERS sustained as a result of Northern Trust鈥檚 false claims, civil penalties up to $10,000 for each false claim, and $2,500 for each violation of the Business and Professions Code, and all fees and costs associated with the lawsuit.
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