BlackRock wins dismissal of funds' securities lending lawsuit

Two pension funds accused the company of collecting “grossly excessive” compensation from securities-lending returns linked to iShares
JUL 31, 2013
BlackRock Inc., the world's biggest money manager, persuaded a judge to dismiss a lawsuit brought by two pension funds that accused the company of collecting “grossly excessive” compensation from securities-lending returns linked to iShares Inc. U.S. District Judge Aleta Trauger in Nashville, Tennessee, said the law governing securities lending doesn't authorize investors, like the pension funds, to sue. “Without congressional intent expressed in a statute, a cause of action does not exist and the courts may not create one,” Trauger wrote. The suit was filed in January by Laborers Local 265 Pension Fund, based in Cincinnati, and Plumbers and Pipefitters Local No. 572 Pension Fund, of Nashville. Investment funds with holdings in stocks or other securities can earn more by lending out their holdings to borrowers, including short sellers, those betting the value of a security will fall. Investors who lend out the securities divide the proceeds with a securities lending agent. Some funds, including BlackRock, use their own securities-lending operation. “We are pleased with the court's decision,” Christine Hudacko, a spokeswoman for New York-based BlackRock, said in an e-mailed statement. The pension funds alleged that BlackRock affiliates collected 40 percent of revenue earned from securities lending transactions as compensation. Trauger gave the pension funds until September 17 to file an amended complaint. Davia Hayward, a spokeswoman for Robbins Arroyo LLP, the pension funds' law firm, didn't immediately reply to a phone message requesting comment. (Bloomberg News)

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