Diebold v. Northern Trust Investments, N.A.
On March 30, 2009, Berger & Montague, P.C. filed a class action complaint in the United States District Court for the Northern District of Illinois on behalf of all 401(k) and pension plans that invested or maintained investments between January 1, 2007 and the present in any collective trusts (the “Collective Trusts”) managed or operated by The Northern Trust Company or Northern Trust Investments, N.A. (the “Northern Trust Defendants”), where such Collective Trusts engaged in the practice known as “security lending.” The lawsuit is captioned, Diebold v. Northern Trust Investments, N.A. (Civil Action No. 1:09-cv-01934).
The lawsuit alleges that the Northern Trust Defendants engaged in breaches of fiduciary duties established by the Employee Retirement Income Security Act of 1974 (“ERISA”), as well as other ERISA violations, when they recklessly engaged in “securities lending” for their own benefit. They did so in a manner that involved imprudent and unreasonable risk of loss to the 401(k) and pension plans whose funds they managed in the Collective Trusts. The complaint alleges that the 401(k) and pension plans suffered large financial losses as a result of these securities lending practices.
The practice of securities lending involves the temporary “loan” of a stock (or other security) by its long-term owner – here, the Collective Trusts – who then secured the loan with collateral. The collateral is supposed to be invested in safe, short-term, liquid instruments; however, the complaint alleges that the Northern Trust Defendants instead chose investments that were illiquid, highly-leveraged and unduly risky, including mortgage-backed securities and other securitized debt instruments that were inappropriate investments for retirement plans. The complaint further alleges that the fees and other compensation the Northern Trust Defendants collected in connection with their securities lending activities violated ERISA.
On August 7, 2015 Judge Susan E. Cox approved the allocation plan for a $36 million settlement involving allegations that Northern Trust Investments NA breached its duties to retirement plans and to a class of their participants and beneficiaries. The judge also agreed to the awarding of $10,000 for each of the two named plaintiffs, Joseph L. Diebold Jr. and Paul J. Hundt.