Compliance

Court Dismisses Lawsuit against BlackRock

By Kevin McGuinness editors@plansponsor.com | August 29, 2013
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August 29, 2013 (PLANSPONSOR.com) – A Tennessee district court dismissed a lawsuit against BlackRock that dealt with allegations of excessive fees for certain transactions.

In January 2013, Laborers’ Local 265 Pension Fund in Cincinnati and Plumbers and Pipefitters Local No. 572 Pension Fund in Nashville, filed the suit in the U.S. District Court for the Middle District of Tennessee, Nashville Division (see “Pension Funds Sue BlackRock”).

The lawsuit alleged that the defendants—BlackRock Institutional Trust Company, N.A., a national banking association that provides securities lending services to the iShares investment companies and other funds, and BlackRock Fund Advisors, which manages and advises the iShares funds with respect to their investment activities—were wrongly enriched through lending agreements at the expense of investors and violated provisions of the Investment Company Act of 1940 (ICA).

The suit alleged that the lending agreement provided excessive compensation to the BlackRock defendants, with this compensation being derived from revenue generated by certain securities lending transactions, also known as short-selling transactions.

The lending agreement provided that the defendants received a fee of 35% of the net revenue earned from short-selling transactions in exchange for its services. The plaintiffs alleged that an additional 5% of the short-selling revenue is awarded to the BlackRock affiliates for administrative fees, resulting in a 40/60 division of revenue between the BlackRock affiliates and the iShares funds. The plaintiffs further contend that this is excessive compared to peer mutual funds and compared to funds employing unaffiliated lending agents.

The lawsuit claimed that these fees violated Section 36(b), Section 47(b) and Section 36(a) of the ICA.