EBSA News Release: [01/27/2014]
Contact Name: Michael Trupo or Laura McGinnis
Phone Number: (202) 693-6588 or x4653
Email: Trupo.Michael@dol.gov or McGinnis.Laura.K@dol.gov
Release Number: 14-0113-NAT
US Labor Department and Securities and Exchange Commission
reach combined $21M in settlements with Western Asset Management
Multiple settlements resolve allegations brought by both agencies
WASHINGTON The U.S. Department of Labor today announced a settlement with Western Asset Management Company, a subsidiary of Legg Mason Inc. This follows investigations, which revealed the purchase of prohibited securities that resulted in losses to the accounts of nearly 100 employee benefit plans and investment funds holding plan assets. The settlement also resolves findings that the company engaged in prohibited cross-trading of securities in the accounts of other retirement plans and funds, which caused additional losses. The settlement was achieved in coordination with the U.S. Securities and Exchange Commission. The settlement and related SEC charges require Western Asset to restore a total of more than $17.4 million to employee benefit plans and other accounts and require the company to pay more than $3.6 million in penalties.
"Workers invest too much in retirement plans to have them diminished by the very people they trust to grow their savings," said U.S. Secretary of Labor Thomas E. Perez. "The department is committed to protecting retirement savings so that more of America's workers have the opportunity to build nest eggs and live securely when they retire."
The investigation found that from Jan. 31, 2007, through June 12, 2009, Western Asset used funds from accounts covered by the Employee Retirement Income Security Act to purchase approximately $90 million of securities that were prohibited for purchase and ownership by such accounts. Specifically, Western Asset purchased Glen Meadow Pass-Through Trust Securities for 99 ERISA-covered accounts that were under its management. The investigation determined that the company's own compliance system recognized that the terms of the securities prohibited their ownership by ERISA-covered entities. However, Western Asset overrode the system, allowing the accounts to improperly purchase and hold the securities in their portfolios.
The department determined that the company's management and compliance personnel became aware of the issue by October 2008, but failed to immediately correct the error or inform their clients about the situation. This violated the company's own policies. The accounts continued to hold the prohibited securities until June 2009, at which time they were sold, resulting in significant losses.
The department's investigation also found that from 2007 through 2010, Western Asset arranged 514 cross-trades involving ERISA-covered accounts. Western Asset sold fixed-income securities from client accounts, including ERISA-covered accounts to various broker-dealers. The company then repurchased the same securities from the same broker-dealers on behalf of different clients at a mark-up and without obtaining independent offers. Cross-trade transactions are prohibited by ERISA, except under certain circumstances, to protect employee benefit plans from an investment manager's conflicts of interest. The department's investigation determined that as a result of unfair pricing involving these cross-trades, certain ERISA-covered accounts suffered more than $6 million in losses.
"Western Asset violated its fiduciary duty to act solely in the best interest of its plan clients," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "Its failure to follow not only the law, but its own rules, cost hard-working employees millions of dollars."
Western Asset is headquartered in Pasadena. Its clients include numerous ERISA-covered employee benefit plans. This case was investigated by the regional office of the Employee Benefits Security Administration in Los Angeles, in coordination with the SEC's Los Angeles Regional Office and New York Regional Office.
Workers participating in employer-sponsored health and retirement benefit plans who feel that they have been denied a benefit inappropriately or have questions about benefits laws can contact an EBSA benefits advisor by visiting http://www.askebsa.dol.gov or calling 866-444-EBSA (3272).