In a recent securities case, manager BlackRock is accused of self-dealing and pilfering from iShares exchange-traded funds’ securities lending revenues. The plaintiffs are pension funds Plumbers and Pipefitters Local No. 572 Pension Fund of Nashville and Laborers’ Local 265 Pension Fund of Cincinnati. They contend that a number of the iShares ETFs put money towards compensation that was “grossly excessive” to pay agents, including those with affiliations to the funds. iShares Chairman Michael Latham and BlackRock President Robert Kapito are also defendants.
The plaintiffs contend that BlackRock’s iShares ETFs violated fiduciary duties and created an fee structure was excessive in order to avail of returns from securities lending that should have been paid to investors. They believe that iShares ETFs and officials at Blackrock perpetuated a scam that allowed them to get their hands on at minimum 40% of revenues from securities lending at cost to investors.
However, BlackRock, which is the largest ETF manager, is arguing that the securities case is without merit. The company claims that its program for securities lending has generated returns that exceed the average to ETF shareholders and it believes that its lending policies shouldn’t be compared with others in its field. BlackRock has pointed out that while it has profited from the program, investors do get their high returns “over time.” It intends to fight the ETF lawsuit.
Securities Lending
This practice involves ETFs and mutual funds paying agents for their help in lending portfolio shares to Wall Street traders while making interest. Securities lending has been known to up profits and investor returns.
The pension funds’ lawsuit could help shed light on the ETF business—perhaps even leading to reforms that could assist investors, just as recent investor lawsuits involving 401 (k) s resulted in lower prices and more disclosures.
If you believe you are the victim of ETF financial fraud, contact our securities law firm today.
Related Web Resources:
U.S. pension funds sue Blackrock, allege ‘looting’ at iShares, Reuters, February 3, 2013
BlackRock iShares unit joins ETF fee-cutting war, CBS News, October 15, 2012
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