Articles Posted in Pension Funds

The U.S. District Court for the Eastern District of Michigan says it won’t be remanding the securities fraud lawsuit accusing UBS Securities LLC and related entities of inducing two Detroit pension plans into taking an equity position in a collateralized loan obligation and then breaching their fiduciary duties through the improper liquidation of the securities. As a result of the alleged defrauding, the Detroit Police and Fire Retirement System of Detroit and the Detroit General Retirement System, also known together as the “Systems,” claim they were deprived of their $40 million investment.

The securities fraud lawsuit, which seeks rescission of contracts and damages, alleges violations of the Michigan Uniform Securities Act and numerous Michigan statutory and common law wrongs. The plaintiffs contend that the $20 billion in CLOs that UBS had obtained through subsidiary Dillon Read Capital Management had deteriorated so badly by May 2007 that UBS sought to unload them. They claim that the broker-dealer not only misrepresented the risks involved with CLOs and its ability to control them, but also, the misrepresentations were part of a scam to get rid of the loans.

While the defendants sought to remove the action to federal district court on the grounds of diversity jurisdiction, the plaintiffs wanted to remand the case to state court. They argued that diversity jurisdiction was lacking. The court, however, refused to send the securities lawsuit back.

Related Web Resource:
General Retirement System of the City of Detroit vs. UBS AG

Finance, City of Detroit

Securities Fraud Attorneys

UBS, Institutional Investors Securities Blog

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Quadrangle investment group founding partner Steven Rattner has settled for $10 million allegations that he bribed officials to obtain a substantial investment from New York State’s pension fund. The financier, who is a California Public Employees’ Retirement System (CalPERS) outside investment partner and previously served as President Barack Obama’s “car czar,” is accused of being involved in a “pay-to-play” scam involving Quadrangle. Pension officials were allegedly given kickbacks for directing state pension money to the fund.

It was just last April that Quadrangle settled charges over the pension fund scheme with then-New York Attorney General Andrew Cuomo and the US Securities and Exchange Commission. Rattner, who is no longer with Quadrangle, was not part of that agreement. He had left the investment group to help President Obama restructure the auto industry. Rattner was forced to step down last summer because of the allegations related to the pension scam.

The probe has resulted in eight guilty pleas. Cuomo, who was just sworn in as New York’s governor, has called the state pension fund a “valuable asset held in trust for retirees.”

The NY pension fund case is not related to Rattner’s work with the $218.8 billion CalPERS, which is also dealing with its own bribery scandal. The allegations involve Alfred Villalobos, a businessman who made millions from representing firms that wanted investment money from the California pension fund. Governor Jerry Brown, who was at the time the state’s attorney general, sued ex- CalPERS Chief Executive Fred Buenrostro and Villalobos last May. The $95 million securities complaint accused Villalobos of bribing Buenrostro and two others. Villalobos, who has denied any wrongdoing, has since filed for bankruptcy. An independent examiner has recommended that stricter ethics rules for CalPERS managers be put in place.

Related Web Resources:

Former auto czar pays $10 million fine,, December 30, 2010

Bankruptcy judge blocks California suit against ex-CalPERS official Villalobos, SacBee/Inland Politics, September 1, 2010


Pension Funds

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A US district court judge has issued a ruling in the securities fraud lawsuit against Morgan Stanley and several affiliates. The case, which was brought by West Virginia Investment Management Board (WVIMB), involves mortgage-backed securities.

WVIMB, which bought securities from Morgan Stanley Mortgage Loan Trust 2007-11AR, had filed class claims against securities bought under the trust claiming that the defendants had violated federal securities laws when making mortgage-backed securities sales. However, WVIMB wanted to expand the claims to include 30 other loan trusts even though it hadn’t bought securities from them.

Morgan Stanley and its affiliates contended that WVIMB did not have the legal standing to pursue claims on certificates it didn’t buy. They also said that the plaintiff waited too long to file its claims on Trust 2007-11AR. The court agreed.

According to Judge Laura Taylor Swain’s decision, pension funds do not have standing to bring certain claims, and, at least in court, there will be a distinction made between loan trusts that have separate prospectus supplements even if they have the same shelf registration statement. The court also noted that the pension fund had enough information that it could and should have filed its securities lawsuit sooner. Swain’s decision narrowed the pension fund’s claims that the defendants affiliates violated federal securities laws when making mortgage-backed securities sales.

Mortgage-Backed Securities
Many securities fraud lawsuits that have been filed over the alleged wrongdoings related to the marketing, packaging, and sale of mortgage-backed securities. Retirement funds, pension funds, and other investors are among those that have sued investment firms and banks for misleading them about these securities and failing to reveal the true degree of risk involved in investing in them.

Related Web Resources:
West Virginia Investment Management Board

Morgan Stanley Mortgage Pass-Through Certificates Litigation,, August 17, 2010

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