The Los Angeles city attorney has sued a major financial institution, alleging its investment practices cost the city’s pension fund $95 million.
The lawsuit filed Wednesday alleges that Northern Trust Corporation participated in unlawful business practices and violated the False Claims Act with the investment of funds held by the Los Angeles City Employees Retirement System.
LACERS manages retirement benefits for more than 43,000 public employees. Northern Trust has acted as the primary custodian and investment manager for LACERS since 1991.
Northern Trust wrongly invested in consumer debt and failing home mortgage-backed securities, said City Attorney Carmen Trutanich.
Although Northern Trust claimed that investments made by the company were “low risk” or “minimized risk,” Trutanich alleges the company changed its investment strategy from June 2006 to June 2008 to target high risk investments.
Further, Trutanich alleges that Northern Trust would have benefited from the investments, regardless of how they performed for the city.
“Northern Trust benefited while the investments produced interest income, even if the investments were certain to produce a loss to LACERS, since LACERS bore the loss but Northern Trust shared in the income, but not the loss,” the complaint alleges.
Northern Trust spokesman Doug Holt told the Los Angeles Times the case has no merit.
“The Los Angeles Employees Retirement System did not lose money on securities lending,” Holt told the Times. “We regret that this meritless lawsuit will likely cost the LACERS pension plan, and the city of Los Angeles, millions of dollars in unnecessary legal fees and out-of-pocket expenses.”
The suit also alleges that Pension Consulting Alliance, Inc., a hired watchdog for the investments, failed to warn the city about inappropriate high-risk investments.
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