Fidelity

CYES Strategy Investments Prove Too Risky for Investors

Published on: July 15, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Over the last several months, it has come to light that brokers from some of the largest firms on Wall Street firms sold Collateral Yield Investment Strategies (CYES Strategies) that may not have been suitable for many investors, causing them to suffer devastating losses. Offered through registered investment adviser Harvest Volatility Management, LLC, the CYES Strategy is a type of Yield Investment Strategy (YES Strategy), only even more risky and complex.

YES Strategy Investments

Reportedly, UBS (UBS), Credit Suisse (CS), Bank of America’s (BAC) Merrill Lynch, Morgan Stanley (MS), and other brokerage firms brokers sold YES Strategies to many wealthy investors, touting the approach as safe way to increase returns on conservative portfolios. These were supposed to be small returns at a low risk, using a strategic approach that involved the purchasing and selling of SPX index options spreads.

Fidelity is Sued Over Alleged Retirement Plan Mismanagement Again

Published on: October 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Nearly years after settling two 401K lawsuits for $12 million, participants in Fidelity Investments’ retirement plan are once more suing the firm. The plaintiffs allege that self-dealing cost them money while allowing the financial firm and a number of its affiliated entities to turn a profit.

According to the complaint in Moitoso et al v. FMR LLC et al, Fidelity breached its fiduciary obligation to plan participants by including too many proprietary mutual funds in its $15B 401(K) plan. The plaintiffs claim that compared to 2014 and 2015, there was an increase in in-house funds in the 401(k) plan in 2016: 234 proprietary mutual funds with no non-proprietary funds in the plan, whatsoever.

Fidelity is accused of choosing proprietary investment products to promote its own interests even if they may not have been suitable for plan participants. As a result, contend plaintiffs, compared to the typical 401(k) plan, plan participants have lost $100M more annually because of poor performance and costly fund fees.

Despite FINRA Securities Arbitration Victory Against Wine Mogul, Fidelity is Accused of Prioritizing Its Own Interests

Published on: August 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the securities arbitration claim brought by a wine mogul against Fidelity Brokerage Services, a Financial Industry Regulatory panel may not have ordered the financial firm to pay claimant Peter Deutsch compensation but that doesn’t mean the panelists believe that the broker-dealer placed its former client’s interests before its own.

Deutsch’s family’s company, Deutsch Family Wine & Spirits, markets Yellow Tail and Beaujolais Nouveau wines. He is accusing Fidelity of not handling his account properly when he bet on Chinese shares. He claims that this cost him up to $436M.

Deutsch contends that he believed Fidelity unit Fidelity Family Office when it told him his best interests were the firm’s priority but they then allegedly proceeded to ignore what he wanted and lent out shares belonging to him. The brokerage unit also stopped Deutsch’s trading in China Medical Technology shares when it prevented him from buying an additional 50 million stock shares. Now he claims that this foiled his attempt to gain a controlling stake in the company.

Ruling on Deutsch’s bid for damages last month, the arbitrators turned down that request “in its entirety” on the grounds that they believe he would have lost money anyway even if Fidelity had dealt with his account differently. The panel agreed with the firm in that calculating damages could not be done in a way that wasn’t based on hypotheticals. The arbitrators didn’t weigh in on his claim that the broker-dealer acted inappropriately by lending his shares to short-sellers.

Voya Sued in 401(K) Lawsuit, is Accused of Partaking of Investment Advice Fee Charge

Published on: September 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Voya Financial Inc. (VOYA) is the defendant in a 401(k) lawsuit alleging excessive fees. According to a Nestle 401(k) Savings Plan participant, Voya and managed-account provider Financial Engines came up with an arrangement that allowed Voya to collect excessive fees for service related to investment advice, but without disclosing that this was part of their deal. In Patrico v. Voya Financial, Inc. et al., the plaintiff is claiming breach of fiduciary duty under ERISA.

The proposed class action lawsuit contends that Voya offered participants an advice program via the Voya Retirement Advisers but subcontracted to have Financial Engines give the advice. The plaintiff contends that even though Voya didn’t provide “material services” related to the advice that participants were given through the program, the company collected a fee to which it purportedly had no right. Voya allegedly keeps a “substantial” part of the fee, while giving some of the fee to Financial Engines.

Voya denies any wrongdoing.

Wine Mogul Accuses Fidelity of Fraud, Seeks up to $500M in FINRA Arbitration

Published on: April 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Wine merchant Peter Deutsch has filed a FINRA arbitration claim seeking $400 – $500M from Fidelity. He claims that he might have earned that amount of money if only the financial firm had not stopped him from obtaining a 66% share of a company in which he had already invested $40M. Meantime, Fidelity is contending that it kept Deutsch from trading because of worries that he was attempting to illegally manipulate the company’s shares.

The dispute began when Deutsch sought to purchase at least another 50 million shares of stock in China Medical Technologies in 2012. His investment efforts, however, were barred by Fidelity, which said it was “uncomfortable” with the transaction. It was in 2011 that a sales team from Fidelity Family Office Services (FFOS) had sought Deutsche out to join its group of wealthy clients.

In court papers, Deutsch alleges that while he was trying to gain control of China Medical Technologies, which is a cancer treatment device maker, FFOS was aggressively buying the stock in secret rather than helping him. He also claims that Fidelity used his shares to its benefit even though this was not what he wanted. He believes that the firm blocked him from trading to conceal its wrongdoing.

He is accusing Fidelity of inappropriate share lending. The firm, however, describes its practice of lending out shares belonging to its clients as fully paid lending. According to Bloomberg, sources said that Fidelity, which insists that the arbitration case is without merit, maintains that it didn’t lend out Deutsch’s shares under its lending program but that it used its authority to lend shares out of his margin account. Securities lending is something that Fidelity clients consent to when they set up a margin account.

Securities Cases: Class Action Lawsuit Charges Fidelity with Duty Breach, Billionaire Ira Rennert in Court Over Alleged $70M Pension Fund Fraud, and Dole Sued Over Merger Fraud

Published on: December 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments Unit Faces ERISA Fiduciary Breach Claims
Fidelity Management Trust Co. has been named a defendant in a class action securities case under ERISA law. The plaintiffs claim that the Fidelity Investments unit is in fiduciary breach under ERISA because it included a stable value fund as an investment alternative for 401(k) plan accounts. They believe that low investment returns and high fees made the fund an unwise investment for participants in a 401(k) plan.

William Perry and James Ellis are the lead plaintiffs. At different times through the Barnes & Noble Inc. 401(k) plan, they were invested in the Fidelity Group Employee Benefit Plan Managed Income Portfolio Commingled Pool (MIP) fund. Plaintiffs believe that the high fees and poor results were because of the deliberate omissions and actions of Fidelity Management Trust as MIP’s fiduciary and trustee.

According to the complaint, before 2009 Fidelity executed an investment strategy that proved unsuccessful when it placed mortgage-backed securities, asset-backed securities, and collateralized loan obligations, and others securitize debt in the portfolio. MIP lost value when the financial crisis struck. After that, Fidelity changed up its asset allocation to lower risk to the fund’s wrap providers, including AIG Financial Products, Monumental Life Insurance Company, JP Morgan Chase Bank, State Street Bank and Trust, and Rabobank Netherland. Plaintiffs believe it is this conservative strategy that led to lower returns. They said that excessive fees, which were paid to wrap providers, hurt them.

Plaintiffs represented by the class include everyone involved in ERISA-governed plans that use the fund.

Billionaire In Court Again for Pension Fund Fraud
Ira Rennert, the billionaire industrialist, is once again accused of pension fraud. This time, the allegations involve $70 million and the fund of another family-controlled company. According to the allegations, Rennert was able to avoid responsibility for pension expenses of his RG Steel company when he lied to the Pension Benefit Guaranty Corporation. The independent US government entity, which is the plaintiff in this pension fraud case, said it would have terminated RG Steel’s pension plan if it had known that the company was about to be sold. If that had occurred, Rennert’s Renco Group would have had to take care of pension costs.

The government entity claims that Renco president, Ari Rennert, omitted key information and lied when he told PBCG that he would keep them updated of changes. A week later, about 25% of Renco was bought by Cerberus Capital and the former no longer had a pension liability. Renco denies the allegations.

Plaintiffs Appeal Federal Court’s Ruling Dismissing Their 401(K) Lawsuit Against Fidelity

Published on: April 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A notice of appeal was submitted with the 1st U.S. Circuit Court of Appeals by plaintiffs seeking to overturn a ruling by a federal district court dismissing their 401(K) case against Fidelity Investments. The case is In Re Fidelity ERISA Float Litigation.

According to the plaintiffs, who are participants in a number of defined contribution plans, as record keeper for several of the plan, the financial firm breached its fiduciary duty when managing the plans’ float income. This is the money made from interest-bearing accounts that 401k) plans use temporarily before plan assets are disbursed and participants move their funds among different investment choices.

The plan participants believe that Fidelity used the float income to cover administrative and record-keeping costs, which was not part of their agreement with the firm in terms of the fees they were supposed to pay it. However, U.S. District Judge Denise Casper dismissed their complaint last month, finding that the plaintiffs did not plausibly allege that “float income is a plan asset.” Casper noted that she did not consider Fidelity an ERISA fiduciary in relation to float. Now, however, the plaintiffs’ lawyers are disagreeing with Casper’s ruling.

Fidelity Investment, BlackRock, Other Asset Managers Take Issue with Plans to Expand Too Big to Fail Rules

Published on: April 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, some of the largest asset managers in the world are complaining that draft proposals for identifying financial institutions besides insurers and banks that may be too big to fail would employ an erroneous analysis of the investment industry. Fidelity Investment, Pacific Investment Management Co.(PIMCO), BlackRock Inc. (BLK), and others wrote written responses to a consultation made by international standard setters. Pimco, whose response was published on the International Organization of Securities Commission’s web site, called the blue print “fundamentally flawed,” saying that it failed to accurately show the risks involving the asset management industry or investment funds.

The proposals regarding too-big-to fail come after efforts by global regulators in the Financial Stability Board to rank insurers and banks according to their potential to trigger a worldwide financial meltdown. Under the plans published earlier this year by Iosco and FSB, investment funds with assets greater than $100 billion could be given the too big to fail label. The proposals are also suggesting possibly making asset managers that oversee with big funds subject to additional rules.

However, BlackRock, in its consultation response, is arguing that a fund’s size isn’t a sign of systemic risk and many of the biggest funds are not likely to pose issues of systemic risk. It also contends that concentrating on asset managers is the ‘wrong approach” seeing as they are “dramatically less susceptible” to getting into financial distress than other financial institutions. BlackRock is one of the firms that believes that international standard setters should instead put their attention on figuring out which activities could prove systematically essential rather than trying to label certain funds and asset managers as too big to fail.