SFMS Files ERISA Class Action Against DST Systems, Inc.

On March 14, 2016, Shepherd, Finkelman, Miller & Shah, LLP, on behalf of Plaintiff, Clive Cooper, and similarly situated participants and beneficiaries of the 401(k) Profit Sharing Plan (the “Plan”) of DST Systems, Inc. (“DST” or the “Company”) from March 14, 2010 and onward, filed a class action lawsuit in the United States District Court for the Southern District of New York (Case No. 1:16-cv-01900). The Complaint asserts claims under the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001, et seq. against DST; Ruane Cunniff & Goldfarb Inc. (“RCG”), an investment firm that serves as an investment adviser and fiduciary to the Plan; the Advisory Committee of the Plan (the “Advisory Committee”); Gregg Wm. Givens, a member of the Advisory Committee; the Compensation Committee of the Board of Directors of DST; and Directors of DST, including Jerome H. Bailey, Lynn Dorsey Bleil, Lowell L. Bryan, Gary D. Forsee, Charles E. Haldeman, Jr., and Samuel G. Liss (collectively, “Defendants”).

According to the Complaint, the Plan consists of two components: (1) a Profit Sharing Account (“PSA”), in which the assets are invested by the Plan’s trustee as advised by an investment advisory firm (i.e., RCG); and (2) a 401(k) portion, which is participant-directed. Until December 31, 2014, the DST Plan also included an investment option that allowed participants to invest in DST stock.

Plaintiff asserted that Defendants breached their fiduciary duties under ERISA in a myriad of significant ways. Specifically, the Complaint claimed Defendants managed to lose the Plan and its participants well in excess of $100 million due to an exceptionally imprudent investment strategy with respect to a significant portion of the Plan’s assets and/or failed to adequately monitor the investments of the Plan and the fiduciaries pursing this investment “strategy.” With respect to the PSA portion, Plaintiff argued that the Company and other Defendants essentially “gambl[ed]” with 50% of the Plan’s employee retirement assets in “an opaque, high-risk, long-term investment strategy” for which Plan participants received little (if any) information regarding the investment objectives of the PSA. To illustrate, Plan participants recently learned that RCG shockingly invested an enormous and imprudent amount of the PSA in the stock of Valeant Pharmaceuticals International, Inc. (“Valeant”). According to the Plan’s financial statements, at year-end 2014, the PSA held almost 30% of its assets (and more than 15% of the Plan’s assets) in Valeant stock. While the 52-week high of Valeant stock placed the PSA’s interest in Valeant at an approximate value of $414.7 million, as of March 4, 2016, the PSA’s interest in Valeant plummeted to as low as $61.31 per share, representing a total value of under $97 million – a loss in value of more than $300 million of the PSA’s value from its approximate high. The Complaint alleges the investment of such a significant portion of the PSA’s portfolio value in one high-risk investment was “highly imprudent and an abject breach of fiduciary duty.” Moreover, since employees could not choose their investment options and were given little to no information, they had no choice but to “endure the Valeant stock roller-coaster ride.”

Moreover, Plaintiff alleged that Defendants also breached their fiduciary duties by allowing unreasonable expenses to be charged to participants for administration of the Plan. Specifically, with respect to the non-PSA portion of the Plan, the expense ratios of many of the mutual funds included in the Plan were “plainly excessive in nature” and resulted in the Plan paying tens of millions of dollars in excessive fees to mutual funds, their investment managers and similar investment instruments offered to participants. With more than $1 billion in assets, the Plan is in the top one percent of 401(k) plans in the entire country.

The marketplace for 401(k) retirement plan services can be competitive when fiduciaries act in an informed and prudent manner. However, the Complaint claims that the Defendants either ignored and/or failed to recognize their incredible leverage in the market and did not secure reasonable management fees for the Plan participants. For example, the non-PSA portion of the Plan was invested in the $3.8 MO Prime Money Market Class Y, which has an extremely high expense ratio. As a result, Plaintiff asserted that the Plan and its participants suffered losses of tens of millions of dollars.

A copy the Complaint may be obtained from the Court, or you can either call our office toll free at (866) 540-5505 to speak with an attorney regarding this matter, or email us (Alec Berin (aberin@sfmslaw.com) or Chiharu Sekino (csekino@sfmslaw.com) and we will send you a copy of the Complaint.

The legal team at SFMS has significant experience litigating ERISA class action cases. If you have any questions regarding this subject or this posting, please contact Alec Berin (aberin@sfmslaw.com) or Chiharu Sekino (csekino@sfmslaw.com). We can also be reached toll-free at (866) 540-5505.

Shepherd, Finkelman, Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.


Case No.: 1:16-cv-01900, Complaint (Document 1)