Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Credit Suisse Securities (USA) LLC, Deutsche Bank AG, Morgan Stanley Capital Services LLC, and other international banks defeated an attempt to revive a lawsuit under federal benefits law that sought to hold them liable over the alleged manipulation of the foreign currency market.
The lawsuit, brought on behalf of numerous retirement plans and their participants, didn’t sufficiently allege that the banks exercised the type of control that would make them fiduciaries under the Employee Retirement Income Security Act, the U.S. Court of Appeals for the Second Circuit held July 10.
The decision is the latest installment in a series of lawsuits filed against major financial institutions, including BNP Paribas, Bank of America NA, Barclays PLC, and Goldman Sachs & Co. A number of these institutions reached a settlement in a related antitrust litigation.
In general, the retirement plans alleged the banks colluded to manipulate foreign currency transactions to retain higher profits in violation of ERISA. The foreign currency exchange (FX) market is the largest and most actively traded financial market in the world, with more than $5 trillion traded per day across the globe. The banks sued in this action hold a combined global market share of 84 percent, according to court documents.
ERISA plans often trade currency to settle their purchases and sales of foreign securities, or to repatriate dividends, interest, and redemptions that are paid in foreign currencies, rather than as a mode of investment, according to court documents.
With the ruling, the three-judge panel affirmed two district court decisions that dismissed the lawsuit. The district court held that the banks’ alleged fraudulent acts in conducting the FX transactions for the plans was insufficient to plead the banks’ ERISA fiduciary status. The district court also dismissed an alternative claim because the plans didn’t allege that the investment managers who arranged the transactions with the plans had knowledge of the banks’ alleged fraud.
The Second Circuit rejected the plans’ argument that the banks became fiduciaries because they exercised sufficient control over plan assets by allegedly manipulating benchmark rates to maximize the profit they reaped from each FX transaction.
A factor that weighs against the conclusion that the banks controlled the plans’ assets is that the transactions at issue were initiated not by the banks but at the discretion of the plans’ independent investment managers, the judges said.
Judge Reena Raggi issued the opinion, which was joined by Judges Dennis Jacobs and Pierre N. Leval .
The case is Allen v. Credit Suisse Sec. (USA) LLC, 2d Cir., No. 16-3327, order affirming district court decision dismissing lawsuit 7/10/18.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)