Northern Trust to Settle Securities Lending Suit With Public Pensions

The Louisiana Firefighters’ Retirement System and other public pension funds alleged that Northern Trust breached its fiduciary duties and its contract related to the funds’ investment in the securities lending program.

Northern Trust has agreed to settle a lawsuit brought by several public pension funds over its securities lending program.

The firm will pay $4,250,000 to settle the suit. Northern Trust has expressly denied all assertions of wrongdoing or liability against it, and agreed to enter into the settlement solely to avoid the uncertainty, burden and expense of protracted litigation.

The Louisiana Firefighters’ Retirement System, Public School Teachers’ Pension & Retirement Fund of Chicago, the Board of Trustees of the Pontiac Police & Fire Retirement System and the Board of Trustees of the City of Pontiac General Employees Retirement System filed the lawsuit on behalf of themselves and all others similarly situated. The lawsuit alleged that Northern Trust improperly invested collateral received to secure the loan of securities from its Commingled Lending Funds and/or collateral received to secure the loan of securities from the portfolio of a client that participated directly in Northern Trust’s securities lending program.

In February 2012, Northern Trust failed in its attempt to transfer blame of any losses onto the funds’ boards. Last year, Northern Trust agreed to pay $36 million to settle another lawsuit claiming it violated the Employee Retirement Income Security Act (ERISA) by imprudently investing collateral received from securities lending activities and by charging impermissibly high fees.

A hearing for final approval of the current settlement will be held in January.