The Pension Benefit Guaranty Corp, the US pension fund insurer, has filed a lawsuit against Morgan Stanley Investment Management (MSIM) seeking $25m in damages over risky pension investments it made for New York's Saint Vincent Catholic Medical Centres' pension plan.
Morgan Stanley invested the assets of Saint Vincent’s pension plan in mortgage-backed securities in 2007 and 2008.
Pension Benefit Guaranty Corp (PBGC) complaint alleges that Morgan Stanley was aware that the financial instruments were overly risky, violating Saint Vincent’s instructions and breaching its fiduciary duty.
"MSIM irresponsibly concentrated approximately 50% of the Plan’s fixed-income assets in the single asset class of mortgage-backed securities, even as MSIM became aware in 2007 and 2008 of the rapid and dramatic deterioration of the mortgage-backed securities market," according to a claim lodged in the federal appeals court in late May.
Case was originally brought by St. Vincent in 2009 but the case was dismissed.
In April 2010 PBGC assumed control over the plan in 2010 after the hospital system had begun liquidation.
The PBGC, which is now responsible for paying benefits to Saint Vincent’s 9,500 workers and retirees, is taking up the appeal now.
PBGC’s appeal argues that the district court got it wrong by misreading the complaint and overlooking key facts about the high concentration of investments in mortgage-backed securities.
PBGC wants the Second Circuit to overturn the ruling.