Compliance January 30, 2009

Pension Fund Sues UBS

The New Orleans Employees Retirement System has filed a class action lawsuit seeking billions of dollars in damages from UBS.
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The suit was filed in the United States District Court for the Southern District of New York, by the $400 million pension fund on behalf of all purchasers of UBS stock between May 4, 2004 and January 26, 2009. The pension fund says that it purchased shares of UBS at “artificially inflated prices during the Class Period.’
The complaint, through the pension fund’s counsel Labaton Sucharow LLP, alleged that UBS maintained and benefited from a scheme allowing and encouraging clients to evade U.S. tax law by concealing billions of dollars of funds in “undeclared’ Swiss bank accounts.
According to a press release, the complaint also alleges that UBS’s Swiss bankers have improperly sold securities in the United States without a license in violation of SEC regulations, and have actively conspired to subvert Qualified Intermediary reporting obligations which facilitated tax evasion for U.S. investors.
The complaint says that “Defendants touted the record levels of Net New Money attracted, bragged of record income, profits and earnings per share (“EPS’), and boasted of the Company’s purported commitment to integrity and business ethics’, and also “routinely assured investors and analysts that the Company employed state of the art risk management tactics and had robust internal controls designed to identify and mitigate operational risks.’ However, the complaint alleges that those statements were “…all false and misleading because at the time they were made Defendants were actively engaged in a tax evasion scheme which, even when investigators had fingered some of the Company’s lower level client advisors, Defendants ultimately could not abandon because it was simply too valuable to UBS.’
The complaint goes on to note that, “when the scheme was finally uncovered by U.S. authorities and UBS began disclosing the true nature of its Swiss banking business, the Company’s stock price plummeted causing substantial losses to UBS shareholders. Further, that as a result of its alleged malfeasance, UBS now faces a penalty fine in the amount of $1.2 billion, and possibly a felony indictment from the U.S. Government.
You can view a copy of the complaint online at http://www.labaton.com/en/cases/upload/UBS-Complaint.pdf
Compliance January 30, 2009

Stock-Drop Suit Passes First Hurdle

An employee 401(k) stock-drop suit survived its first major challenge when a federal judge in Tennessee turned away an early effort by the employer to have the claim dismissed.
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U.S. District Judge Todd J. Campbell of the U.S. District Court for the Middle District of Tennessee ruled that employee Kenneth Banks had marshaled enough evidence to back up his claims that Healthways Inc. continued having a company stock investment option even after it was no longer prudent to do so. Banks also alleged the company did not properly disclose information about its finances to participants.

However, Campbell warned that he would toss out any claims Healthways did not disclose non-public financial information because such disclosure is not required under the Employee Retirement Income Security Act (ERISA).

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The July 2008 lawsuit said Healthways and four other companies were involved in the Medicare Health Support (MHS) pilot program launched by the Centers for Medicare and Medicaid Services (CMS). The five companies failed to meet their health delivery cost savings targets set by CMS and were required to reimburse CMS for the fees they received through the program, according to the opinion.

The suit charges that Healthways minimized the problems it was encountering with MHS in public statements and regulatory filings, and when the full information was made public, the company’s share price dropped by 34%.

According to the opinion, Healthways matched employee contributions by $0.52 cents for every dollar with $0.5 cents invested in Healthways stock. The remainder of the matching contributions were invested as directed by employees.

For its part, the company argued its 401(k) was actually an employee stock ownership plan (ESOP) and that the court’s review of the plan fiduciaries’ decision to invest in Healthways stock should be under an abuse of discretion standard.

The case is Banks v. Healthways Inc., M.D. Tenn., No. 3:08-0734, 1/28/09.

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