Morgan Stanley ERISA Class Action

Case Description

Case Type: Financial Services Litigation
Company: Morgan Stanley

NEW YORK, August 19, 2016 –  Sanford Heisler Sharp, LLP filed a class complaint today in the U.S. District Court of the Southern District of New York detailing the many ways in which Morgan Stanley violates basic fiduciary duties under ERISA and abuses its employees’ trust by mismanaging their retirement funds. The company invests employees’ retirement savings in multiple funds that consistently underperform compared to other similar collective investment funds. The company also steers these investments to Morgan Stanley’s own poorly performing mutual funds, profiting off employees’ retirement savings. For this inferior plan management, Morgan Stanley charges its employees excessive prices, which are far higher than those it charges outside institutional clients with like assets and investment strategy. The consequences to employees are substantial: Morgan Stanley’s plans have cost its employees hundreds of millions of dollars in retirement funds.

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Plaintiff Robert Patterson, a participant in the Company’s retirement plan, filed the case on behalf of himself and approximately 60,000 current and former plan participants. Named as Defendants are Morgan Stanley, its various subsidiaries, and the Company’s Board of Directors. The class complaint seeks $150 million in damages.

Millions of Americans rely on their employer to provide meaningful retirement planning and savings. The law recognizes this reality, and therefore obligates employers to act exclusively in the best interest of employees. Under the strict fiduciary obligations of the Employment Retirement Income Security Act (ERISA), employers are required to use care, skill, prudence, and diligence in their investment decisions, and must ensure that plan expenses are reasonable. Employers may not place their own self-interests ahead of the interests of their employees.

David Sanford, chairman of Sanford Heisler Sharp and counsel for Plaintiff and the class, noted, “ERISA’s fiduciary standards are strict and exacting. The plan administrator and Morgan Stanley fail the fiduciary test. Not only does the company provide employers with inferior, low-performing products, but it imposes excessive fees for the privilege. Morgan Stanley should be held to the highest standard as a fiduciary; instead, in this case, it falls below the lowest standard.”

The complaint describes how thousands of Morgan Stanley employees and former employees invest hundreds of millions of dollars in the company’s retirement plan. With over $8 billion in assets, the plan is one of the largest 401(k) plans in the country. Given the Company’s investment sophistication and extensive assets, employees trust Morgan Stanley to construct a stellar 401(k) plan. Instead, Morgan Stanley saddles their more than 60,000 captive participants with a sub-standard plan, loaded with $8 billion of investment options that are primarily mediocre-to-poor performers. Morgan Stanley fails to select investment options and monitor their investment performance with the skill, care and prudence required by ERISA.

Morgan Stanley also treats the plan as an opportunity to promote Morgan Stanley’s own mutual fund business and maximize profits at the expense of participants. Morgan Stanley loads the retirement plan with mutual funds managed by Morgan Stanley, without thoroughly investigating whether plan participants would be better served by investments managed by unaffiliated companies. One major Morgan Stanley fund ranked in the bottom 10% of performers. By acting to benefit itself, Morgan Stanley causes the plan, and hence participants, to suffer staggering losses.

In a further violation of their fiduciary duties, Morgan Stanley targets its employees with exorbitant investment advisory and administrative fees. The fees Morgan Stanley charges its mutual funds in the Plan are higher than the fees Morgan Stanley charges its outside clients with like assets and similar investment strategies.

Charles Field, a partner at Sanford Heisler Sharp and counsel for Plaintiff and the class, added, “An employer must act for the exclusive benefit of plan participants and not in the employer’s mercenary self-interest. Here, Morgan Stanley charges plan participants fees that are higher than those it charges outside investors with similar assets and investment strategy. This is a classic violation of an ERISA trustee’s fiduciary duties.”

As relief, Plaintiff and the class seek (1) damages for financial losses to plan beneficiaries resulting from the plans’ underperforming investments and excessive fees; (2) reform to Morgan Stanley’s retirement plans that would remove imprudent investments and ensure only reasonable recordkeeping expenses; and (3) the removal of the company’s fiduciaries who have violated their duties to the plans’ beneficiaries under ERISA. Plaintiff demands a trial by jury.

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