Settlement Struck in Stable Value Suit

The parties in a long-running legal battle have agreed to settle a fiduciary breach suit involving the underlying investments in a stable value fund.

As part of the settlement (In re J.P. Morgan Stable Value Fund ERISA LitigationS.D.N.Y., No. 1:12-cv-02548-VSB), J.P. Morgan has agreed to pay $75 million to resolve an ERISA class action suit in which the plaintiffs alleged that the firm breached its fiduciary duties by having 78 of its stable value funds “invest heavily” in proprietary bond funds – funds that the plaintiffs alleged were invested in “excessively risky, highly leveraged” mortgage-related assets.

In a consolidated and amended complaint filed December 2014, the plaintiffs contended that J.P. Morgan’s stable value funds’ investment in the mortgage-related assets was not suitable for a stable value product and was not prudent given the “character and aims of stable value funds.”

According to the plaintiffs’ memorandum in support of their motion for preliminary approval of the settlement, the parties executed the settlement agreement on Nov. 2. The settlement still needs to be approved by Judge Vernon Broderick of the U.S. District Court for the Southern District of New York.

The memorandum notes that the plaintiffs estimate damages between $410 million and $555 million, but contends that the $75 million cash settlement represents a significant ERISA settlement that is within the range of reasonableness compared with other recent ERISA class action settlements. Moreover, the memorandum notes that, because the law around stable value ERISA cases is just developing, it compounds the risk the class faces the longer it continues to litigate this action.

Stable value fund offerings have been the target of a number of class action suits recently, albeit for a wide variety of alleged transgressions ranging from failing to include funds in investment lineups to fiduciary breach claims over excessive fees and imprudent investment options.

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