The Chattanooga (Tenn.) General Pension Plan lost more than $20 million over a seven-year period through "a deceptive and fraudulent scheme" developed by the plan's prior consultants, according to an arbitration claim mailed to the National Association of Securities Dealers. The claim stems from a review of work performed between 1996 and 2003 by William Keith Phillips, who worked for UBS PaineWebber and moved to Morgan Stanley Dean Witter during those years. The board of the $180 million pension plan is seeking to recover the $20 million as well as unspecified punitive damages, according to the document.
The arbitration claim said Mr. Phillips and the two firms "employed improper methods and tactics to gain control over" the pension fund, "misrepresented material facts and omitted to state others to the Chattanooga Pension Plan, which resulted in higher commissions and lower returns" for the fund.
In a statement on Chattanooga's website, David Eichenthal, chairman of the pension board, said Mr. Phillips, UBS PaineWebber and Morgan Stanley "regularly and repeatedly profited by putting their financial interests ahead of the interests of the plan and the employees and taxpayers who fund it." Mr. Eichenthal did not return a call seeking comment by press time.
Aubrey B. Harwell Jr., a partner with the law firm of Neal & Harwell and the lawyer representing Mr. Phillips, said Mr. Phillips "acted in an honest and responsible way throughout the time he was dealing with the city of Chattanooga." Mr. Harwell said "the annual return on investment of (the Chattanooga pension) fund while Mr. Phillips was involved were an indication of his success when compared to any benchmarks."
NASD spokesman Herb Perone, Morgan Stanley spokeswoman Andrea Slattery and UBS spokesman Peter Casey could not comment on the matter. Mr. Phillips did not return a call seeking comment by press time.
The pension fund hired Consulting Services Group in 2003 to replace Morgan Stanley and Mr. Phillips.
The arbitration request said the scheme was "derived and tested" on the Nashville & Davidson County Metropolitan Government Benefit Board, which found inherent conflicts of interest in an audit that led to a $10.3 million settlement in 2002 by UBS PaineWebber and Mr. Phillips.