Los Angeles City Attorney Carmen A. Trutanich has filed a $95 million lawsuit against Northern Trust claiming the firm placed assets of the Los Angeles City Employees Retirement System (LACERS) in high-risk securities as part of the pensions securities lending program. That apparently resulted in unexpected losses for the public pension in 2008.
Northern Trust made false claims and statements regarding its management of the assets of the Los Angeles City Employees’ Retirement System [LACERS] in order to receive payments as a custodian bank and securities lending agent, according to the attorneys suit.
A Northern Trust spokesperson counters that LACERS, for whom it has acted as custodian since 1991, has actually earned tens of millions of dollars over the past 20 years in its securities lending program, despite some losses at the height of the financial crisis in 2008. The custodian still has an excellent, long-standing and ongoing relationship with LACERS, for which it still operates the securities lending program, Northern Trust says.
The city attorneys suit, brought years after the losses were incurred, is based on hindsight, the Northern Trust spokesperson says. It is premised on the legally deficient claim that Northern Trust should have predicted unprecedented events even though the markets as a whole had not.
Furthermore, the pension directed its own securities lending programNorthern Trust only invested cash collateral according to LACERS guidelines, the custodian says.
Given the foregoing, Northern Trust will vigorously defend itself against this litigation, the spokesperson says.
Custodians are no strangers to securities lending lawsuits. The attorney general in South Carolina as well as a Swedish pension fund are suing BNY Mellon; an Ohio pension is suing Wachovia; Wells Fargo paid $30.1 million in a securities lending lawsuit, and it is still facing a lawsuit by a number of U.S. Midwest pensions and endowments; and just this week AIG reached an agreement to settle a securities lending suit by Transatlantic Holdings. Those are just to name a few.
(CG)