Detroit Pension Denied Bank Redress

(September 20, 2013) — One of the largest public pensions in Detroit has failed in its attempt to bring fraud charges against several bulge-bracket banks.

On September 18, an arbitration panel from the Financial Industry Regulatory Authority, an independent regulator of US securities firms, dismissed claims brought by Detroit’s Police and Fire Retirement System, Reuters reported.

The system had brought claims against Citigroup, Morgan Stanley, and several other smaller institutions in 2010. It claimed the banks had defrauded and breached both contracts and their fiduciary duty when recommending the system invest in various collateralized debt obligation funds.

The system was seeking $39.9 million in damages from the institutions cited in its claims. The panel denied all of the system’s claims.

The ruling is the latest in which US public pensions have failed to win compensation from financial institutions embroiled in the financial crisis, and the selling of asset-backed securities.

In August, a New York judge dismissed a pension fund-led case brought against Moody’s, which claimed the rating agency misrepresented the creditworthiness of securities, and thereby harmed investments.

Some investors have had more luck, however. Dutch giant ABP has won back tens of millions of euros in legal settlements with banks over asset-backed securities claims as defendants—including Deutsche Bank and JP Morgan—settled before trial.

The state of Detroit filed for bankruptcy this summer, leaving creditors, including the Police and Fire Retirement System facing a battle for any free cash. The system, along with the general public fund, attempted to sue Governor Rick Snyder to block him from authorizing the bankruptcy that would potentially cut pensions to members.

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