Laborers’ Local 265 Pension Fund in Cincinnati, Plumbers and Pipefitters Local No. 572 Pension Fund in Nashville say BlackRock engaged in a scheme of “siphoning off securities lending profits for the benefit of mutual fund managers.” The lawsuit further alleges BlackRock arranged for affiliates of iShares to take at least 40% of securities lending revenues at the expense of investors—a fee disproportionate to performance and “far beyond what would be negotiated in arm’s length transactions with unaffiliated entities.”
The lawsuit says defendants in the case “have systematically violated their fiduciary duties, setting up an excessive fee structure designed to loot securities lending returns properly due to iShares investors.” The pension funds are seeking to recover funds owed to them as iShares shareholders, “which were improperly spent by iShares’s management on grossly excessive compensation to securities lending agents affiliated with iShares and certain of their affiliates.”
In a statement, BlackRock said: “Our securities lending program has delivered above average returns to our ETF shareholders over time. To achieve this, we run the program ourselves while bearing all the costs, rather than outsourcing to third parties as others do. iShares has a long record of delivering the returns our ETF investors expect, and securities lending is one of the tools we use to help ensure our funds efficiently track the performance of their underlying indices. The complaint is without merit, and we will contest it vigorously.”
The complaint is here.