WEBVTT - Harris on Morgan Stanley Accusation (Audio)

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<v Speaker 1>This is taking stock with Gadley Hay and pim Box

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<v Speaker 1>on Bloomberg Radio. Morgan Stanley was hit with a class

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<v Speaker 1>action suit today, filed on behalf of sixty thousand workers.

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<v Speaker 1>The suit claims that the company mismanaged its own employees

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<v Speaker 1>retirement plans by offering poorly performing funds and charging excessive fees.

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<v Speaker 1>Here to tell us more is Andrew Harris, legal reporter

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<v Speaker 1>for Bloomberg News, joining us from Washington, d C. Of course,

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<v Speaker 1>home to Bloomberg one and one oh five point seven

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<v Speaker 1>h D two. Andrew, thanks for being with me, so

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<v Speaker 1>tell us the details of this lawsuit. Well. The lawsuit

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<v Speaker 1>was filed this morning by Robert Patterson, a former Morgan

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<v Speaker 1>Stanley employee, who claims that the company was um not

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<v Speaker 1>serving its own employees, well at least those that participated.

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<v Speaker 1>And it's for one K plan by putting them in

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<v Speaker 1>poor performing funds and as you noted, soaking them with

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<v Speaker 1>excessive fees. It's not the first time a lawsuit like

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<v Speaker 1>this has been filed, but you don't usually see them

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<v Speaker 1>again companies whose business it is to manage investments. Indeed,

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<v Speaker 1>and one of the examples that is given in the

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<v Speaker 1>lawsuit is the Morgan Stanley Institutional Small Cap Growth Fund,

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<v Speaker 1>the I S class that performed worse than of all

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<v Speaker 1>other small cap growth funds in fourteen, worse than of

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<v Speaker 1>them in twenty. And I understand that this fund carried

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<v Speaker 1>a ninety eight basis point cost. Compare that to a

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<v Speaker 1>similar fund from Vanguard, and we're talking about seven basis points.

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<v Speaker 1>Is that correct? That is correct? These were These are costly,

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<v Speaker 1>UH poor performing funds, at least for the people that

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<v Speaker 1>were in them. And UM that wasn't the only fund

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<v Speaker 1>that was low rated to the Chicago based investment advisory

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<v Speaker 1>for a morning Star had given UH its lowest rating

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<v Speaker 1>to Morgan Stanley's Institutional MidCap Growth fund, and UM that

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<v Speaker 1>was the only MidCap fund that was being offered to

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<v Speaker 1>Morgan Stanley planted participants, So they didn't have a lot

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<v Speaker 1>of choice in that matter except not to participate. What

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<v Speaker 1>are some of the potential future actions that could happen,

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<v Speaker 1>I mean it could be classified, what it's like a

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<v Speaker 1>class action suit and what would happen? Yes, he sued

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<v Speaker 1>on behalf of employees that were UH plan participants between UH.

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<v Speaker 1>That question of class certification, of course, goes before a

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<v Speaker 1>judge and the company gets to oppose that. So that's

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<v Speaker 1>that's not a certainty. Um. Oftentimes cases like this get settled,

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<v Speaker 1>sometimes just on the eve of trial. UM. How much

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<v Speaker 1>are they seeking. They're seeing a hundred and fifty million

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<v Speaker 1>dollars and damages. Um. Obviously, if there's going to be assilement,

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<v Speaker 1>there will be somewhere between that number and zero pick number.

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<v Speaker 1>And there are new rules, aren't there coming from the

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<v Speaker 1>Labor Department about employee retirement income security. There there are

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<v Speaker 1>trying to codify obligations for financial advisors to put their

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<v Speaker 1>clients interest first. In fact, there's a case pending here

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<v Speaker 1>in Washington, Ryme based where UM one of the opponents

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<v Speaker 1>of that new regulation is going to court to see

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<v Speaker 1>if they can get it blocked as a prelude to

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<v Speaker 1>getting it struck down now, Andrew, this is as you

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<v Speaker 1>mentioned earlier, this is not the first time that there

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<v Speaker 1>have been lawsuits alleging excessive fees charged to employees of

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<v Speaker 1>four oh one k plants. Correct. I mean, just recently

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<v Speaker 1>some top us colleges and universities have been hit with

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<v Speaker 1>lawsuits not just for their four oh one K but

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<v Speaker 1>also their four oh three B retirement plans. Yeah, there

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<v Speaker 1>was recent spate of filings in the past two weeks.

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<v Speaker 1>In fact, the law firm the file today's lawsuit also

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<v Speaker 1>suit Columbia Adversity a couple of days ago, making just

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<v Speaker 1>those allegations. And previously we have seen litigation against Caterpillar,

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<v Speaker 1>We've seen litigation against Lockheed. UM. You know, a lot

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<v Speaker 1>of these cases are become very, very fact fact specific,

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<v Speaker 1>so it's difficult to predict how any one of them

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<v Speaker 1>will turn out based upon prior performance, if you will, right,

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<v Speaker 1>I mean, it's and it's not just about to be clear,

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<v Speaker 1>it is not just about the performance of the investments

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<v Speaker 1>that are offered. It is the fees that are associated

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<v Speaker 1>with making the investments in the first place. That that's correct.

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<v Speaker 1>In fact, one of the core allegations in the Lockheed

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<v Speaker 1>case was that UH employees who were in the company's

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<v Speaker 1>stock plant, we're paying more in fees and as a result,

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<v Speaker 1>getting a worse return on investment than if they head

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<v Speaker 1>simply bought the stock on the street like anybody else. Well,

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<v Speaker 1>thank you very much for sharing this detail with us.

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<v Speaker 1>Andrew Howard Harris, our legal reporter for Bloomberg News in Washington,

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<v Speaker 1>d c home to Bloomberg nine one FM and one

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<v Speaker 1>oh five point seven h D two shares of Morgan

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<v Speaker 1>Stanley basically unchanged right now at thirty dollars and fifty

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<v Speaker 1>five cents