LOS ANGELES (CBS) — An investment firm hired to manage the public pension for city workers in Los Angeles mismanaged the fund and cost taxpayers nearly $100 million, according to a lawsuit announced Thursday.

In the lawsuit, City Attorney Carmen Trutanich accused the Northern Trust Corporation of “institutional deception” when the firm invested pension funds in high-risked mortgage-backed securities.

The suit also says that Pension Consulting Alliance, Inc., a firm hired to oversee the investments, failed to warn the city about possible risks.

“The fraud that happens on Wall Street truly affects Main Street,” Trutanich said. “Here it affected the 43,000 pensioners in the Los Angeles City Employee Retirement System.”

“We lost $95 million,” he added.

According to the lawsuit, Northern Trust engaged in unlawful business practices and violated the False Claims Act.

Trutanich will officially announce the lawsuit on Thursday.

Northern Trust could not be reached for comment.

Comments (7)
  1. Steve says:

    Hearing stories from close relatives involved in pension management, I am a bit skeptical about the “institutional deception” being claimed in this story. A specific story that was shared was with regard to my relative attempting to repeatedly inform the organization’s pension “key man” (appointed by the union) of the fact that they were underfunding the pension account and that they were not able to get the returns “demanded” by the union. Over the course of several months, the key man avoided phone calls, meeting requests, and certified mail regarding the discussion of the problem. The law firm that my relative works for then sent a legal notice informing the union that their pension was being underfunded. The response was first from the key man, saying that the underfunding was unacceptable and malicious on the part of the law firm and that they needed to “figure it out” or else they would be sued. The law firm responded by informing the key man that the union had agreed to an annual sum being provided to the pension and that they were several hundred thousand dollars per year below the requirement. The key man then came back and claimed, like in the above story, intentional mismanagement and fraud by the law firm. The firm then cut ties with the union and transferred the funds to some new firm for the union to bully. No lawsuit was ever filed by the union and the union members were not informed of the underfunding of the pension. Somewhere down the line, similar claims to the one above will be made by that union against the managing firm and it will be a complete farce.

    1. Dina says:

      About 5 years ago a friend who works at LACERS informed me ofthe investing in high risked mortgage backed securities. They attempted to get this out to anyone who would listen. Shortly after they were harrassed after management found out. It is the commission that approves these investments. I would look for the connection between commissioners and lobbyist/employees of Pension Consulting Alliances and Northern Trust Corp. It’s time to recoup some of our losses from this flagrant abuse of power that exist within the LACERS Board (specifically mayoral appointees) and the former manager of LACERS. Follow the money and the politicians behind this. It may provide some valuable insight. http://www.hispanicbusiness.com/2008/6/13/public_pension_guru_robert_aguallo_moves.htm

      The message above should replace union with the word commissioner. You may have a story there. Also, check out the department because there is a storm brewing.

      1. fire wilson says:

        wherever northern goes it seems the companies or those they deal with are either paid off or receiving favors, in my opinion, that is, they lost the money, why should lacers have to pay them what northern lost, i would have not given them a dime. i don’t trust them as far as i can spit, and that isn’t too far

  2. Jane says:

    As a taxpayer, I’ve been funding CALPERS since at least the 90s due to mismanagment. The “baby boomer” generation should have been contributing in record amounts, since there are so many of them. Now that they’re retiring, this is only going to get worse. If the public pension funds DO finally get some real management and become profitable in the next decade — Will CA taxpayers be repaid with interest for bailing them out for 20-30 years?

    1. fire wilson says:

      i think it is an outrage, where northern trust made lacers pay what northern lost. ridiculous. they are the ones who had the bad investments, its up to them to make good for it. what a lot of arrogance , and how does lacers know that the next time is going to be better? maybe they will lose this too. maybe not all of it, but they already have shown themselves to be deceptive.

  3. fire wilson says:

    its northern trust that is up to no good, i am a former client and they bilked me and cheated me, you know what i think happened? i think they paid pension consulting alliance off to look the other way instead of reporting northern trust activities to lacers, and perhaps pension consulting hoped for the best as regards the investments not losing . but northern is unreal, what they did to me, they actually contrived an artificial over fund to my brother’s account in a fifty fifty trust, added a condo to it twice as if there had been two condos, and then told me they transferred half that( fake ) overfund into my investment portion for my equal fifty fifty share of the trust, he got the whole condo in a cashless transaction, here is the key sign the paper, and they had no discretionary permission with the condo not to do it the way the contract calls for, say, watch out for them pretending to be dumb. believe it or not they will play that , and what else they do is call things inadvertent errors, as if there were any other kind of errors, they wrote me and said they forgot about the real estate in the trust for five years, after i raised all kinds of noise . they called it an inadvertent error. hey, feb. 16 the golf game five million , like last year, in los angeles, they aren’t sweating this, they could not care less, about the individual employees involved with lacers.

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