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Compliance December 9, 2005
Judge Clears Path for Fund Trading Suit against Strong
December 9, 2005 (PLANSPONSOR.com) - A federal judge
in Maryland has allowed a K plan participant to push forward
with his allegations of an Employee Retirement Income
Security Act (ERISA) fiduciary violation against a provider
in connection with market timing and late trading.
Reported by Fred Schneyer
US District Judge Catherine Blake of the US District Court for the District of Maryland issued the ruling as part of a multi-district litigation case that also includes similar charges against seven other fund providers.
In addition to the portion of the case against Strong Capital Management involved in Blake’s most recent ruling, similar suits are pending against Alliance , Amvescap, Bank of America, Bank One, Janus and Marsh & McLennan/Putnam. The multi-district case was filed by New York state Attorney General Eliot Spitzer, who has spearheaded a state/federal fund industry investigation in recent years that has focused on market timing, late trading and certain sales practices.
The court rejected the argument that as a former participant who had already received his lump-sum distribution from his K plan, Flynn lacked standing to pursue a fiduciary breach claim under ERISA. Asserted Blake: former participants “should not forfeit a cause of action under ERISA to recover what is rightfully theirs under the plan by taking a pay-out of what they incorrectly believe is all that is owed to them at that time.” Flynn charged that the Strong mutual funds improperly permitted illegal late trading and/or market timing and that the value of participants’ investments was diluted as a result.
The court also threw out Strong Capital’s argument that Flynn’s lawsuit should be dismissed because, as an eligible individual account plan, the K plan’s investment in Strong Capital’s mutual funds was entitled to a presumption of prudence under which the decision to invest in the funds should be deemed prudent unless Strong Capital faced “impending collapse.”
According to Blake’s ruling, Flynn started working at Strong Capital in September 2001 and was later was transferred to Strong Financial Corp., where he participated in a K plan that consisted of 28 investment alternatives from the Strong family of mutual funds. According to the court, Strong Capital was the investment adviser for the mutual funds.
Flynn left his employment at Strong Financial in 2003 and received a lump-sum distribution from his 401(k) account.
The opinion in In re Mutual Funds Investment Litigation, D. Md., No. 1:04:md-15864-CCB, 12/6/05 is here .