Updated Friday, September 19, 2014 as of 7:56 PM ET

BlackRock Sued by Funds Over Securities Lending Fees

(Bloomberg) - BlackRock the world’s biggest money manager, is accused in a lawsuit by two pension funds of reaping “grossly excessive” compensation from securities- lending returns associated withiShares.

“Defendants have systematically violated their fiduciary duties, setting up an excessive fee structure designed to loot securities lending returns properly due to iShares investors,” the funds, which invest in iShares, said in a complaint in federal court in Nashville, Tennessee.

Investment funds with holdings in stocks or other securities can earn more by lending out their holdings to borrowers, including short sellers, those betting the value of a security will fall. Investors who lend out the securities divide the proceeds with a securities lending agent. Some funds, including BlackRock, use their own securities-lending operation.

The pension funds allege that BlackRock affiliates collected 40 percent of revenue earned from securities lending transactions as compensation.

Blackrock said the suit is without merit and will contest it.

“Our securities lending program has delivered above average returns to our ETF shareholders over time,” said Caroline Hancock, a BlackRock spokeswoman, in an e-mailed statement. “To achieve this, we run the program ourselves while bearing all the costs, rather than outsourcing to third parties as others do.

Lending Ban

The suit, filed by Laborers Local 265 Pension Fund, based in Cincinnati, and Plumbers and Pipefitters Local No. 572 Pension Fund, of Nashville, names BlackRock Institutional Trust Co.,iShares Trust, iShares and nine other BlackRock affiliates.

Also named are BlackRock president Robert Kapito, Michael Latham, the chairman of Ishares, and seven other officials of whom are trustees of iShares Trust and directors of iShares.

The pension funds, in the suit filed Jan. 18, seek financial penalties including unspecified damages and a ban on lending of iShares securities “absent a fairly and openly negotiated contract between iShares or individual funds and an independent lending agent.”

Get access to this article and thousands more...

All Bank Investment Consultant articles are archived after 7 days. REGISTER NOW for unlimited access to all recently archived articles, as well as thousands of searchable stories. Registered Members also gain access to exclusive industry white paper downloads, web seminars, blog discussions, the iPad App, CE Exams, and conference discounts. Qualified members may also choose to receive our free monthly magazine and any of our daily or weekly e-newsletters covering the latest breaking news, opinions from industry leaders, developing trends and growth strategies.

Already Registered?

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.

Already a subscriber? Log in here