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National Indemnity Co. may have violated the law by offering the Sequoia Fund as an investment option in its 401(k) plan, a federal judge ruled.
The judge Feb. 26 refused to dismiss a proposed class action challenging National Indemnity’s decision to continue offering the Sequoia Fund during a period in which the fund lost a quarter of its value based in part on its exposure to the stock of controversial drugmaker Valeant Pharmaceuticals. National Indemnity, a Nebraska-based insurer and a subsidiary of Berkshire Hathaway, “intentionally steered” 401(k) assets toward the Sequoia Fund by naming the fund as its default investment option, according to the lawsuit.
The Sequoia Fund’s stake in Valeant has spurred several proposed class actions under the Employee Retirement Income Security Act. A lawsuit involving the 401(k) plan of Walt Disney Co. was dismissed in 2017, and several lawsuits have targeted investment firm Ruane Cunniff & Goldfarb Inc. and business services firm DST Systems Inc. Another case is pending against chemical company FMC Corp.
National Indemnity argued that it couldn’t be held liable for offering one poorly performing investment, because it also offered other, safer investment options. The judge disagreed, saying the availability of multiple investment options doesn’t absolve a 401(k) plan fiduciary of its duty to act prudently.
National Indemnity also said the investor failed to identify any internal procedures or policies that caused him harm, but the judge said this kind of specificity wasn’t needed in the early stages of litigation. The investor’s allegations—that National Indemnity held on to the Sequoia Fund when there were several warning signs about the value of Valeant stock—supported his claim that the investment would have been removed from the plan if National Indemnity had sufficient review processes in place, the judge said.
Finally, the judge allowed the investor to move forward with disloyalty claims against National Indemnity, based on the Sequoia Fund’s investment in Berkshire Hathaway. The investor plausibly alleged that National Indemnity offered the Sequoia Fund more to benefit its parent company than to benefit the employees who invest in its 401(k) plan, the judge said.
Judge John M. Gerrard of the U.S. District Court for the District of Nebraska wrote the decision.
Zamansky LLC and Burg Simpson represented the investor. Steptoe Johnson and Cline Williams represented National Indemnity.
The case is Muri v. Nat’l Indem. Co., 2018 BL 63221, D. Neb., No. 8:17-cv-00178-JMG-CRZ, order denying motion to dismiss 2/26/18.
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