Northern Trust to Pay $36 Million over Securities Lending Case

Northern Trust will pay $36 million to settle a class-action case filed by a group of pension funds which have accused the bank of causing large financial losses due to their securities lending practices during the financial crisis.
By Joe Parsons(2147488729)
Northern Trust will pay $36 million to settle a class-action case filed by a group of pension funds which have accused the bank of causing large financial losses due to their securities lending practices during the financial crisis.

The pension’s funds claimed Northern Trust breached their fiduciary duties established in the Employee Retirement Income Security Act (ERISA) by investing collateral posted by borrowers of the securities in risky investments that caused losses for the retirement funds.

The complaint also alleges the fees and other compensation Northern Trust collected in connection with their securities lending activities violated ERISA.

The settlement comes one year after an initial payment was agreed in January 2014, where the company recorded a $19.2 million expense for the two cases, but the details had been worked out over the last 15 months between Northern Trust and the pension funds.

Papers announcing the settlement were filed in the U.S. District Court, Northern District of Illinois. The plaintiffs are named the Texas Instruments Savings Plan, represented by Joseph Diebold, and the Louisiana Firefighters Retirement System.

In April last year, Northern Trust was served a subpoena from the U.S. Securities Exchange Commission (SEC) in connection to their securities lending practices. According to a quarterly regulatory filing from Northern Trust, it estimated the upper end of the range of ‘possible losses’ for the lawsuits to be around $130 million.

As well as Northern Trust, a number of U.S. big banks have been embroiled in similar lawsuits since the financial crisis.

In May 2014, Wells Fargo agreed to pay $62.5 million to settle claims from a group of institutional investors that the bank improperly advertised a risky securities lending program as safe. In June 2012, JP Morgan paid a $150 million settlement over losses from three union pension funds as a result of the banks securities lending activities.

«