Convergex Dodges ERISA Liability on Standing Grounds

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By Jacklyn Wille

Feb. 22 — Convergex Group LLC isn't liable for overcharging the Central States, Southeast and Southwest Areas Pension Fund by about $1,600, because that amount paled in comparison with Central States' $16 billion underfunding, a federal judge ruled.

In particular, the judge found that Central States participant Landol Fletcher didn't have constitutional standing to challenge Convergex's alleged double-charging scheme because it increased the plan's deficiency “by less than one hundred-thousandth of one percent.” This meant that the company's conduct didn't sufficiently injure Fletcher, the judge reasoned.

Of particular note, the judge said that Convergex's alleged violation of the Employee Retirement Income Security Act wasn't enough to give Fletcher constitutional standing to sue. This issue—whether a statutory violation alone can create constitutional standing—is currently being considered by the U.S. Supreme Court (Spokeo, Inc. v. Robins, U.S., No. 13-1339, argued 11/2/15 ).

The question of whether a pension plan participant has constitutional standing to challenge a statutory violation that doesn't cause a loss of benefits has frequently derailed ERISA lawsuits. A case involving Verizon Communications Inc.'s pension plan that squarely asks this question in the ERISA context has been appealed to the Supreme Court, which hasn't yet announced whether it will hear the case (Pundt v. Verizon Comm'ns, Inc., U.S., No. 15-785, petition filed 12/15/15).

Double-Charging Scheme

In 2013, Fletcher sued Convergex on behalf of participants in the Central States plan and other ERISA-governed pension plans that used Convergex's brokerage and “transition management” services .

According to his amended complaint, Convergex skimmed undisclosed and unauthorized fees from ERISA-governed pension plans by funneling trade orders through an offshore subsidiary broker in Bermuda. By doing so, Convergex retained the spread between the trade price it reported to its ERISA plan customers and the actual price it collected, the complaint alleged.

After “extensive discovery,” it was determined that this scheme allowed Convergex to earn $1,578 in undisclosed profits from the Central States plan, Judge Louis L. Stanton of the U.S. District Court for the Southern District of New York said in his Feb. 17 order.

No Standing

In ruling for Convergex, Stanton said that this amount wasn't a sufficient injury to give Fletcher standing to sue, given the plan's $16 billion underfunding.

“The extent to which that enhanced the plan's existing prospect of default is so minute as to be imaginary and inconsequential rather than ‘an injury in fact' and ‘actual or imminent' as required for constitutional standing,” Stanton said.

Fletcher also argued that the reduction in benefits that he potentially could experience under the Central States rescue plan established standing to sue Convergex. Central States filed an application with the Treasury Department last fall to allow pension reductions to save the plan, as allowed under the Multiemployer Pension Reform Act .

Stanton disagreed with Fletcher's argument, explaining that this proposed reduction in benefits wasn't attributable to Convergex's conduct, but rather “to the plan's long-running and multi-billion-dollar underfunding.”

Stanton also rejected Fletcher's argument that Convergex's statutory violation constituted an injury that gave him standing to sue. This is the question the Supreme Court is considering in Spokeo.

According to Stanton, the U.S. Court of Appeals for the Second Circuit “firmly rejected” this statutory violation argument in 2009 (Kendall v. Emps. Ret. Plan of Avon Prods., 561 F.3d 112, 46 EBC 1582 (2d Cir. 2009) ).

Finally, Stanton barred Fletcher from representing a proposed class of participants and beneficiaries in other ERISA pension plans, noting that Fletcher wasn't a “participant, beneficiary or fiduciary” of those other plans.

Fletcher was represented by Keller Rohrback, McTigue & Veis and Beins Axelrod. Convergex was represented by Morgan Lewis & Bockius.

To contact the reporter on this story: Jacklyn Wille in Washington at

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

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