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Harris on Morgan Stanley Accusation (Audio) · Bloomberg Intelligence

• 0:01
  Speaker 1: This is taking stock with Gadley Hay and pim Box
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  Speaker 1: on Bloomberg Radio. Morgan Stanley was hit with a class
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  Speaker 1: action suit today, filed on behalf of sixty thousand workers.
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  Speaker 1: The suit claims that the company mismanaged its own employees
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  Speaker 1: retirement plans by offering poorly performing funds and charging excessive fees.
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  Speaker 1: Here to tell us more is Andrew Harris, legal reporter
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  Speaker 1: for Bloomberg News, joining us from Washington, d C. Of course,
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  Speaker 1: home to Bloomberg one and one oh five point seven
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  Speaker 1: h D two. Andrew, thanks for being with me, so
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  Speaker 1: tell us the details of this lawsuit. Well. The lawsuit
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  Speaker 1: was filed this morning by Robert Patterson, a former Morgan
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  Speaker 1: Stanley employee, who claims that the company was um not
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  Speaker 1: serving its own employees, well at least those that participated.
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  Speaker 1: And it's for one K plan by putting them in
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  Speaker 1: poor performing funds and as you noted, soaking them with
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  Speaker 1: excessive fees. It's not the first time a lawsuit like
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  Speaker 1: this has been filed, but you don't usually see them
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  Speaker 1: again companies whose business it is to manage investments. Indeed,
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  Speaker 1: and one of the examples that is given in the
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  Speaker 1: lawsuit is the Morgan Stanley Institutional Small Cap Growth Fund,
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  Speaker 1: the I S class that performed worse than of all
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  Speaker 1: other small cap growth funds in fourteen, worse than of
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  Speaker 1: them in twenty. And I understand that this fund carried
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  Speaker 1: a ninety eight basis point cost. Compare that to a
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  Speaker 1: similar fund from Vanguard, and we're talking about seven basis points.
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  Speaker 1: Is that correct? That is correct? These were These are costly,
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  Speaker 1: UH poor performing funds, at least for the people that
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  Speaker 1: were in them. And UM that wasn't the only fund
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  Speaker 1: that was low rated to the Chicago based investment advisory
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  Speaker 1: for a morning Star had given UH its lowest rating
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  Speaker 1: to Morgan Stanley's Institutional MidCap Growth fund, and UM that
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  Speaker 1: was the only MidCap fund that was being offered to
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  Speaker 1: Morgan Stanley planted participants, So they didn't have a lot
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  Speaker 1: of choice in that matter except not to participate. What
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  Speaker 1: are some of the potential future actions that could happen,
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  Speaker 1: I mean it could be classified, what it's like a
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  Speaker 1: class action suit and what would happen? Yes, he sued
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  Speaker 1: on behalf of employees that were UH plan participants between UH.
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  Speaker 1: That question of class certification, of course, goes before a
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  Speaker 1: judge and the company gets to oppose that. So that's
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  Speaker 1: that's not a certainty. Um. Oftentimes cases like this get settled,
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  Speaker 1: sometimes just on the eve of trial. UM. How much
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  Speaker 1: are they seeking. They're seeing a hundred and fifty million
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  Speaker 1: dollars and damages. Um. Obviously, if there's going to be assilement,
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  Speaker 1: there will be somewhere between that number and zero pick number.
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  Speaker 1: And there are new rules, aren't there coming from the
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  Speaker 1: Labor Department about employee retirement income security. There there are
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  Speaker 1: trying to codify obligations for financial advisors to put their
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  Speaker 1: clients interest first. In fact, there's a case pending here
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  Speaker 1: in Washington, Ryme based where UM one of the opponents
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  Speaker 1: of that new regulation is going to court to see
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  Speaker 1: if they can get it blocked as a prelude to
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  Speaker 1: getting it struck down now, Andrew, this is as you
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  Speaker 1: mentioned earlier, this is not the first time that there
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  Speaker 1: have been lawsuits alleging excessive fees charged to employees of
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  Speaker 1: four oh one k plants. Correct. I mean, just recently
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  Speaker 1: some top us colleges and universities have been hit with
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  Speaker 1: lawsuits not just for their four oh one K but
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  Speaker 1: also their four oh three B retirement plans. Yeah, there
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  Speaker 1: was recent spate of filings in the past two weeks.
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  Speaker 1: In fact, the law firm the file today's lawsuit also
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  Speaker 1: suit Columbia Adversity a couple of days ago, making just
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  Speaker 1: those allegations. And previously we have seen litigation against Caterpillar,
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  Speaker 1: We've seen litigation against Lockheed. UM. You know, a lot
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  Speaker 1: of these cases are become very, very fact fact specific,
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  Speaker 1: so it's difficult to predict how any one of them
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  Speaker 1: will turn out based upon prior performance, if you will, right,
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  Speaker 1: I mean, it's and it's not just about to be clear,
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  Speaker 1: it is not just about the performance of the investments
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  Speaker 1: that are offered. It is the fees that are associated
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  Speaker 1: with making the investments in the first place. That that's correct.
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  Speaker 1: In fact, one of the core allegations in the Lockheed
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  Speaker 1: case was that UH employees who were in the company's
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  Speaker 1: stock plant, we're paying more in fees and as a result,
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  Speaker 1: getting a worse return on investment than if they head
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  Speaker 1: simply bought the stock on the street like anybody else. Well,
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  Speaker 1: thank you very much for sharing this detail with us.
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  Speaker 1: Andrew Howard Harris, our legal reporter for Bloomberg News in Washington,
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  Speaker 1: d c home to Bloomberg nine one FM and one
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  Speaker 1: oh five point seven h D two shares of Morgan
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  Speaker 1: Stanley basically unchanged right now at thirty dollars and fifty
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  Speaker 1: five cents