A lawsuit filed by The Timken Co. against its investment consultant Wilshire Associates for $40 million in damages for breaching its fiduciary duties is still in its early stages.
In the suit, filed in a U.S. District Court in California, Timken alleged Wilshire “highly recommended” the Canton, Ohio-based company's pension plan invest in “an excellent enhanced index strategy” offered by Westridge Capital Management Inc., Santa Barbara, Calif.
It is the second known lawsuit against Wilshire regarding Westridge, a firm whose owners were alleged to have run a Ponzi scheme through WG Trading Co. The $2.7 billion Kern County Employees' Retirement Association, Bakersfield, Calif., sued Wilshire in June 2011. That suit was dismissed in October 2012.
According to Timken's complaint, filed last August, the company's pension plans invested $50 million with Westridge in June 2008, based on “Wilshire's investment advice and recommendation, and with the belief that Wilshire had undertaken the rigorous and thorough due diligence of Westridge that Wilshire was required to perform as an ERISA fiduciary.”
In its most recent 10-K filing on Feb. 13, Timken noted that on Feb. 12, 2009, the company “was informed of alleged irregularities in the operation of one of its equity-related investments in its defined benefit plans. A court appointed a receiver to take control of the investment firm and investigate this matter.”
In July 2010, Timken received $20 million from an insurance carrier to transfer into its pension plans to cover part of the loss, according to the company's annual report. In December of that year and in April 2011, the company received two payments from the court-appointed receiver totaling $25.8 million.
Timken spokesman Daniel Minnich, in an e-mail response to question, declined to comment beyond what was in the 10-K. He said it was company policy not to comment on ongoing litigation.
Timken's defined benefit assets totaled $3.1 billion as of Dec. 31, according to the firm's most recent 10-K filing.
In the complaint, Timken alleges its pension plans lost “approximately half of their $50 million principal investment in Westridge” and also lost at least $15 million in investment income, and that Wilshire is responsible for the combined $40 million in losses.
Timken's attorney in the case is Amy C. Gross, associate at Kornstein Veisz Wexler & Pollard LLP. She referred inquiries to William B. Pollard III, partner, who said the firm does not comment on ongoing litigation.
Caroline Walters, associate at McKool Smith, Wilshire Associates counsel; Dennis Tito, Wilshire founder, CEO and chairman; and Julia Bonafede, president of Wilshire Consulting, referred phone calls to Wilshire spokeswoman Kim Shepherd, who said the firm does not discuss its clients.
The suits against Wilshire are among several filed following the Westridge fraud charges in early 2009.
U.S. District Judge Paul Oetken in Manhattan in January granted a request by Deloitte & Touche to throw out the claims by Iowa PERS that the firm exhibited “conscious indifference” and disregarded “red flags” that would have alerted it to the fraud scheme.