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Lawsuit dismissed against Morningstar, Prudential over alleged RICO violations in 401(k) plan

A lawsuit alleging that Morningstar and units of Prudential Financial violated a federal racketeering law in offering an investment service to 401(k) plan participants has been dismissed, said court documents filed March 16.

In the suit, plaintiff Michael Green, a participant in a 401(k) plan of Rollins Inc., Atlanta, alleged that the defendants Morningstar Inc., Prudential Investment Management Services LLC and Prudential Retirement Insurance and Annuity Co. violated the Racketeer Influenced Corrupt Organizations Act by the way they ran the plaintiff's retirement plan and other plans.

In dismissing the case, U.S. District Judge Virginia M. Kendall wrote: "The complaint fails to demonstrate the required elements of an enterprise and pattern of racketeering activity under RICO."

Ms. Kendall noted in the dismissal that the plaintiff "failed to allege that he would have paid lower fees if Prudential had not received revenue-sharing payments and also that the independent actions of Rollins (as the sponsor) and Green himself with regard to his investment decisions make his injury too attenuated from Prudential's actions."

The complaint had alleged that Morningstar and Prudential conspired to increase revenue and profits "from their self-interested administration" of GoalMaker, an "automated investment advice program" from Morningstar and Prudential.

The lawsuit argued that GoalMaker was a "predatory racketeering enterprise" that got "retirement plan investors to turn over the investment management of their accounts" to a unit of Prudential.

"This application steers retirement investors like (the) plaintiff into high-cost investments that pay unwarranted fees to defendants," the complaint had alleged.

Ms. Kendall wrote: "The complaint does not sufficiently plead that the defendants were engaged in the conduct of an association-in-fact enterprise or that each defendant engaged in a pattern of racketeering activity."

The Rollins Inc. 401(k) Savings Plan had assets of $559.3 million as of Dec. 31, 2016, according to the company's most recent 11-K filing with the Securities and Exchange Commission.

Spokeswomen from Morningstar and Prudential declined to comment.

The suit, Green vs. Morningstar Inc. et al., was filed in August in U.S. District Court in Chicago by law firms Schneider Wallace Cottrell Konecky Wotkyns and Nix, Patterson & Roach.