Banks must have nerves of steel these days. Even a lawsuit by a potential 34,000 of a bank’s own employees doesn’t rate a mention in its quarterly 10-Q. That appears the case, at least, with Atlanta-based SunTrust Banks, which is the target of a suit charging that the company offered its pension participants its own and affiliates’ proprietary mutual funds, reaping fees to the detriment of its own employees. If SunTrust had offered comparable Vanguard Group funds for the class period instead of “seven affiliated funds,” the participants would have earned additional retirement income of $110 million, according to the complaint, which cites violations of the Employee Retirement Income Security Act of 1974 — specifically, its fiduciary duty and prohibited transaction provisions.
“We believe the lawsuit to be without merit, and we will vigorously defend ourselves,” the company said through a spokesman when asked why its financials for this year have omitted the suit.
Washington law firm McTigue & Veis filed the claim on behalf of Barbara Fuller, a SunTrust employee for 38 years, on March 11 of this year, alleging that the bank recommended investment vehicles that generated poor returns and may have improved SunTrust’s bottom line at a cost to some of the 34,000 401(k) participants. McTigue & Veis has yet to file a motion to have the complaint certified as a class action. The securities fraud law firm of Page Perry, based in Atlanta, is representing the plaintiffs locally.
Though the company failed to mention the civil enforcement action in its 10-Q1 and 10-Q2 reports this year, SunTrust’s defense against a $14.3 million suit involving a subsidiary of LandAmerica Financial Group, Inc, including the sale of auction-rate securities, is explained in the financial statement notes in the 10-Q2, as are some mortgage-related matters that are still being worked out with courts and regulators. The monetary damage or potential damage to SunTrust’s bottom line is hard to decipher because the company fails to break it out. Instead, in a 10-Q2 web-based graphic presentation, it references “credit-related expenses,” which rose by $37 million from 10-Q1 to 10-Q2, “due to higher operating losses (litigation and compliance accruals) and credit and collections.” How much, if any, of that amount relates to this year’s employee-led lawsuit alleging $110 million in losses, remains murky.
Named in the suit are past and present members of the SunTrust Benefits Plan Committee, some of whom are SunTrust’s top executives, including head of SunTrust Mortgage Jerome Lienhard and president William Rogers Jr. Also referenced, but not parties to the suit, are two subsidiaries, Trusco Capital Management and RidgeWorth Capital Management, which supplied investment advisory services to the affiliated funds and separately managed accounts in the pension plan during the class period.
From January to July of last year, SunTrust tried unsuccessfully to sell RidgeWorth. Instead, it sold $17 billion in money market mutual fund assets to Federated Investors. The assets had been managed in nine RidgeWorth money market mutual funds.
There are eight proprietary affiliated funds named as the affiliated 401(k) funds involved in the lawsuit: the STI Classic Capital Appreciation Fund (later renamed the Large-Cap Growth Fund); the STI Classic Small-Cap Growth Fund; the STI Classic Growth and Income Fund (later the Large-Cap Relative Value Fund, then renamed the Large-Cap Core Equity Fund); the STI Classic Mid-Cap Equity Fund (later Mid-Cap Core Equity); the STI Classic Investment Grade Bond Fund; the STI Classic Short-Term Bond Fund; the STI Classic Prime Quality Money Market Fund; and the STI Classic International Equity Index Fund.
SunTrust is far from alone as the target of plan participant anger over what are perceived to be excessive fees. Marcia Wagner of Boston-based Wagner Law Group, an ERISA specialist firm, has documented what she sees as a pattern of “complaints challenging investment and service provider fees, filed in several waves that reflected evolving and broadening theories as the plaintiffs’ bar became more familiar with the nature of its target.” The charge tends to be “causing or allowing plan providers to be paid excessive fees for their services. There’s a lot of litigation action now on settlement of cases involving 401(k) fees.”
