A U.S. District Court judge in New York has rejected a $79 million ERISA settlement between participants in a DST Systems Inc. 401(k) plan and plan executives, an investment advisory firm and the former CEO of the firm.
The parties reached a settlement in January, pending court approval, in the case of Ferguson et al. vs. Ruane, Cunniff & Goldberg Inc. et al.
U.S. District Court Judge Andrew L. Carter Jr. on Tuesday rejected the request for preliminary approval of the settlement even though he granted plaintiffs' request for class-action status and for amending their complaint to add class allegations.
He opposed the settlement payment because a provision of the preliminary agreement "seeks to enjoin non-parties, including the secretary of labor, from bringing or prosecuting their claims," the judge wrote. "While plaintiffs attempt to characterize this as a traditional bar order, it is plainly not."
Approving this provision "would circumvent the secretary's independent and unqualified right to sue and seek redress for ERISA violations on the basis that ERISA plans significantly affect the 'national public interest,'" he wrote.
The judge's ruling made it clear that he wouldn't grant preliminary approval of the settlement until the document provision that he criticized has been removed.
His approval on Tuesday of class-action status covers all participants and beneficiaries of the DST Systems Inc. 401(k) Profit Sharing Plan from March 4, 2010, through July 31, 2016. The judge wrote that plaintiffs contend that more than 9,000 people are affected.
The participants filed suit in September 2017, accusing the defendants of pursuing "an exceptionally imprudent investment strategy with respect to a significant portion of the plan's assets."
According to the proposed settlement, DST Systems would pay $27 million; the investment advisory firm Ruane, Cunniff & Goldberg would pay $21.5 million; and Robert D. Goldberg, the firm's former president and CEO, would pay $30.5 million. All defendants denied wrongdoing.
The participants' complaint centered on the mutual fund company's Sequoia Fund, which at one point invested 35% of its assets in what was then called Valeant Pharmaceuticals International Inc.
They said the investment advisory firm, which was an investment adviser to the DST plan, violated ERISA by failing to diversify its holdings. They also accused DST fiduciaries of investing "an inappropriate amount" of plan assets in Valeant's stock.
Valeant paid a $45 million penalty to settle charges by the Securities and Exchange Commission of "improper revenue recognition and misleading disclosures in SEC filings and earnings presentations," according to an SEC news release.
Three former top executives of Valeant also paid penalties to settle charges. All of the respondents to the SEC charges neither admitted nor denied the agency's findings, the SEC said.
