US - A participant of Exxon Mobil's 401 (k) has filed a lawsuit against Northern Trust Investments and its parent Northern Trust Company over alleged losses related to securities lending.
It also alleges they did so in a manner that involved imprudent and unreasonable risk of loss to the 401(k) and pension plans whose funds they managed in the collective trusts.
The complaint alleges that the 401(k) and pension plans suffered large financial losses as a result of these securities lending practices.
Law firm Bailey & Glasser principal Gregory Porter told Global Pensions: "The complaint alleges both realised and unrealised losses arose from illiquid, highly leveraged and unduly risky investments.
"For example, realised losses were incurred because the collateral was invested in Lehman Brothers securities."
He added together with Berger & Montague, Schneider Wallace Cottrell Brayton Konecky and Fishman Haygood Phelps Walmsley Willis & Swanson - the other law firms representing the plaintiff Joseph Diebold - Bailey & Glasser was pursuing class-action status.
The lawsuit has been filed in the US District Court for the Northern District of Illinois.
A Northern Trust spokesperson said: "Like other securities lenders, Northern Trust has put in place safeguards designed to treat all participants equitably during extraordinary market conditions.
"Northern Trust did so in its role as trustee of the collective funds so that all participants are treated equitably. Northern Trust will continue to work to protect the interests of all clients. Northern Trust intends to vigorously defend its actions in relation to the Diebold lawsuit."
Earlier last year, Global Pensions reported losses on securities lending collateral invested in money market funds had dramatically hit Dutch pension funds (www.globalpensions.com: 15/10/08).
At the time those schemes were said to be discussing the possibility of taking legal action against unnamed custodians, as well as the possibility of changing service providers.
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