Disney Sued over Undiversified Investment in Retirement Plan

A participant in the Disney Savings and Investment Plan has sued plan fiduciaries regarding its offering of The Sequoia Fund as a plan investment option. 

According to the complaint, The Sequoia Fund is a high cost mutual fund run by adviser Ruane, Cunniff & Goldbarb and its portfolio managers, Robert D. Goldfarb and David M. Poppe. The lawsuit claims that, in violation of plan investment policies, the fund managers concentrated The Sequoia Fund’s assets in a single stock, Valeant Pharmaceuticals, Inc. 

The complaint notes that the plan provides that participants would have at least three investment funds from which to choose and that each investment fund would be diversified. In addition, it says Valeant had a “well-known reputation for misleading investors with faulty accounting and profit expectations and gouging consumers in the sale of pharmaceuticals.” 

In October 2015, the fund managers bought even more shares of Valeant, which the compliant says was despite warning signs and The Sequoia Fund’s already concentrated position. In May 2016, the fund finally sold half of its holdings in Valeant, but Valeant’s stock had already dropped by more than 88%. 

In addition, because of its concentration in Valeant and its fees, The Sequoia Fund underperformed its benchmark, the S&P 500 Index, by 6.14% in 2014, 8.68% in 2015, and 15.17% from January 1 to June 15, 2016. 

The participant filed the suit as a class action against the investment and administrative committee of the Walt Disney Company sponsored qualified benefit plan and key employees’ deferred compensation plan, as well as other fiduciaries, for violations of the Employee Retirement Income Security Act (ERISA) by failing to remove The Sequoia Fund from the plan investment menu options when it became apparent the fund was no longer a prudent investment. 

The complaint is here.