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Investment firm Ruane Cunniff & Goldfarb Inc. and DST Systems Inc. face a third lawsuit over the alleged imprudent investment of DST’s 401(k) plan assets in Valeant Pharmaceuticals stock ( Ferguson v. Ruane Cunniff & Goldfarb Inc. , S.D.N.Y., No. 1:17-cv-06685, complaint filed 9/1/17 ).
Ruane, which manages the Sequoia Fund Inc., with the consent of DST and its executives, allegedly “gambled” over one-third of the plan’s assets in an “opaque, high-cost, high-risk, long term investment strategy” that resulted in losses of more than $100 million to the plan, according to a lawsuit filed Sept. 1 in federal court in New York. Similar to previous allegations, at issue in the new action is the profit sharing account portion of DST’s 401(k) plan, which allegedly was used to support the price of Valeant stock in the Sequoia Fund.
The lawsuit also pointed at DST and its executives for allegedly allowing the plan to pay tens of millions of dollars in excessive fees to mutual funds. DST selected high-priced share classes of mutual funds, instead of identical or available lower-cost share classes of those same mutual funds, the lawsuit alleged.
Two previous lawsuits against DST and Ruane involving similar allegations have met with little success. Last year, a plan participant who sued both entities voluntarily dismissed his lawsuit against the software company but continued his claims against Ruane. Last month, a federal judge in New York allowed Ruane to compel arbitration of the participant’s class claims. In June, a federal judge in Missouri held that another plan participant was barred by DST’s arbitration agreement from bringing his lawsuit in court.
The Sequoia Fund’s stake in Valeant has spurred other proposed class actions under the Employee Retirement Income Security Act. A lawsuit involving the 401(k) plan of the Walt Disney Co. was dismissed in April. Other lawsuits are pending against chemical company FMC Corp. and National Indemnity Co.
DST’s 401(k) plan has more than $1.3 billion in assets and over 9,500 participants, according to the lawsuit.
The Sequoia Fund is an open-end mutual fund that invests in the stock of a limited number of companies that it believes have attractive long-term economic prospects relative to their market price, according to data in the Bloomberg Terminal. The fund’s top holdings include Berkshire Hathaway Inc., Mastercard Inc., and TJX Cos. Inc.
Ruane served as the plan’s investment adviser until August 2016, when its services to the plan were terminated, the lawsuit said.
DST didn’t immediately respond to Bloomberg BNA’s request for comment.
Shepherd Finkelman Miller & Shah LLC and Duckworth Peters Lebowitz Olivier LLP represent the proposed class.
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