Callan Associates charged money managers excessive fees to participate in educational forums that affected the consulting firm's decision to hire and fire those managers, city of San Diego officials charged in documents filed Thursday in the Superior Court of California.
The fees Callan collects from managers for attending educational seminars — including the Callan Institute — make up one-third of the consulting firm's revenue, according to the documents, filed in response to a request from Callan to dismiss the year-old lawsuit.
Included in the documents was a statement from Donald Trone, president and founder of fiduciary consultant Fiduciary360 and a former Callan senior vice president, saying Callan charges "10 to 15 times the market value" for services to money managers. Those payments amount to "extortion," Mr. Trone said.
The documents were the latest filed in San Diego's pending lawsuit against Callan, which claims the consulting firm was negligent in advising the city's $4.1 billion retirement system.
Callan on July 19 filed a motion to dismiss San Diego's lawsuit. The Callan motion said "the city's claims … are without evidentiary support, and are barred by the applicable statutes of limitations."
Doug McCalla, CIO at the San Diego system, did not return a call requesting comment.
Ronald Peyton, Callan president and CEO, declined to comment on the lawsuit, but noted the firm's attorneys are "aggressively fighting these groundless" claims.
According to San Diego's court documents, Callan acted "below the standard of care" as general consultant for its retirement fund by failing to monitor managers adequately and not disclosing conflicts of interest through a brokerage relationship. For example, it took Callan 12 quarters to flag the underperformance of Nicholas-Applegate Capital Management between 2003 and 2005, court documents said.
The city is seeking more than $50 million in damages, according to Bryan Vess, outside counsel for San Diego. A hearing on the dismissal motion is scheduled for Oct. 6, and a trial is set for January.
