June 11, 1996
TO: PENSION MEMBERS No. 23-96
INVESTMENT ADVISER MEMBERS No. 19-96
INVESTMENT ADVISER ASSOCIATE MEMBERS No. 17-96
COMPLIANCE COMMITTEE No. 15-96
RE: INVESTMENT MANAGEMENT COMPANY SETTLES WITH DOL REGARDING
CROSS TRADES
______________________________________________________________________________
An investment management company recently entered into a settlement with the
Department of Labor regarding certain cross trades undertaken on behalf of pension plan
clients.
The DOL had alleged that the execution of securities transactions on behalf of both the
buying and selling accounts of pension plan clients violated the prohibited transaction rules of
the Employee Retirement Income Security Act of 1974 ("ERISA"). Specifically, the DOL had
alleged that the company had caused pension plan accounts under its discretionary control and
management to engage in transactions and exchanges of assets with other accounts under its
discretionary control and management without the intervention of an independent fiduciary
representing the plans. Generally, investment managers must obtain an individual exemption
by application to the DOL in order to effect such transactions.
Under the terms of the settlement, the company neither admitted nor denied the
allegations. The company, however, agreed to reimburse pension plan accounts involved in the
trades for any net loss from the transactions (based on a negotiated methodology) plus an
additional recovery amount to each plan, regardless of any actual loss. A copy of the consent
judgment is attached.
We will keep you informed of developments.
Russell G. Galer
Assistant Counsel - Pension
Attachment
Note: Not all recipients of this memo will receive an attachment. If you wish to obtain a copy
of the attachment referred to in this memo, please call the Institute’s Information Resource
Center at (202)326-8304, and ask for this memo’s attachment number: 7956.