Disney Faces Another ERISA Lawsuit Over Sequoia Fund

Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...

By Jacklyn Wille

June 30 — A new lawsuit attacks Walt Disney's decision allowing workers to invest retirement savings in the Sequoia Fund and the stock of controversial drugmaker Valeant Pharmaceuticals Inc. ( Du Vall v. Inv. & Admin. Comm. of Walt Disney Co. , C.D. Cal., No. 2:16-cv-04743-GW-AJW, complaint filed 6/28/16 ).

In a proposed class action filed June 28, Disney workers allege that the company's retirement plan investment committee should have dumped its Sequoia Fund holdings when the fund's increasing stake in the troubled Valeant—which the workers dub “the Pharmaceutical Enron”—caused a substantial drop in stock price that led to lost retirement savings.

This isn't the first lawsuit attacking the Sequoia Fund's Valeant holdings under the Employee Retirement Income Security Act. A lawsuit making similar claims against Disney's plan committee and its trustee, Fidelity Management Trust Co., was filed in April and remains pending. In March, the fund's longtime manager, Ruane, Cunniff & Goldfarb Inc., was sued under the statute for investing an “enormous and imprudent amount” of retirement plan assets in Valeant stock.

In the June 28 lawsuit, the Disney workers question the retirement plan's decision to continue investing in the Sequoia Fund during a period when more than 30 percent of the fund's assets were in risky Valeant stock. The workers describe this decision as imprudent and in conflict with the plan's directive that investments be diversified.

The workers are particularly critical of the Sequoia Fund's decision to hold such a large stake in a single security. They contend that the 10 most common large-cap domestic stock funds hold no more than 6 percent of their assets in a single security—far less than the 30 percent Valeant stake held by the Sequoia Fund.

The lawsuit—which was filed in the U.S. District Court for the Central District of California—seeks to represent a proposed class of more than 50,000 participants in the Disney Savings and Investment Plan.

Peter K. Stris of Stris & Maher LLP in Los Angeles represents the Disney workers. Stris has become a familiar face in the U.S. Supreme Court by successfully arguing several ERISA cases, including lawsuits questioning a union health benefit fund's ability to sue participants and how 401(k) investors can hold fiduciaries liable for misconduct.

A spokesman for Disney declined to comment on the lawsuit.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.