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Pension Funds

Chattanooga pension fund sues Wells Fargo for alleged fraud over revenue sharing

Chattanooga (Tenn.) Fire and Police Pension Fund has filed a lawsuit in Tennessee court against Wells Fargo, its custodian and trustee, alleging potential fraud and overcharging in its role as trustee,

The suit, filed Tuesday in the Chancery Court of Hamilton County, alleges that Wells Fargo has not provided any disclosures regarding "significant compensation from third-party mutual funds and potentially other third parties," according to the filing.

In addition, Edward "Ted" Siedle, attorney at The Siedle Law Offices, on behalf of the $225 million pension fund, filed a whistleblower complaint with the Securities and Exchange Commission, according to Gary R. Patrick, managing partner at Patrick, Beard, Schulman & Jacoway, who is representing the pension fund.

The pension fund's staff and board of directors said in a statement on its Facebook page that they have been investigating for several months the compensation paid by mutual funds to Wells Fargo. The statement said the company, which has been the pension fund's custodian and trustee since 2005, has provided answers that "have changed over time revealing ever-greater amounts of undisclosed revenue sharing, systemic errors and incomplete records." The statement says the board has lost confidence that Wells Fargo's answers to date are complete and it is now appropriate to file the whistleblower complaint.

"The board is also concerned that other trust and fiduciary accounts may have been similarly harmed," the statement said.

Mr. Patrick said in a telephone interview that while Wells Fargo had responded to requests for documentation after repeated requests, "we were not satisfied with their response, plus we did not get the documentation that we really needed,"

"(We are seeking) all the information that we are entitled to receive for a full accounting of the fees that they have now admitted they took out and should not have taken out and not disclosed to us," he added.

Wells Fargo spokeswoman Leslie Ingberg said in an email that the company acknowledges "that because there was a change directed by the client in 2017, we made an error in setting up the revenue sharing associated with that change appropriately and the revenue-share rebates did not occur as intended. We are sorry this error occurred, and upon discovery the issue was fixed and the total revenue share received from the third-party fund companies (approximately $15,000) was returned to the pension fund. We have been in active dialogue with the client and have been committed to resolving this matter and are disappointed they felt the need to file a complaint requesting information we have provided and are very willing to provide."

In the Chancery Court filing, the pension fund says it has filed the "complaint for an accounting as a last resort in order for this court to order the defendant, as the fund's trustee, to provide an accounting with supporting documentation to fully disclose all sources of revenue" from third parties. The pension fund is seeking an award of litigation costs "and/or equitable principles, and for any other general relief supported by the law and the facts."