Suit protects public pensions, as well as private investors

A lot of questions are being raised about public pensions and the growing disparity between pension benefits enjoyed by public employees and people working in most segments of the private sector.

The debate can be expected to continue in Ohio, especially as some public pension funds are arguing that the taxpayers should carry more of the financial burden.

But regardless of which side of the debate a person is on, one thing everyone should be able to agree on is that pension plans — public and private — should get a fair deal on Wall Street when they invest money for their beneficiaries.

After all, regardless of what percentage of the payments to pension plans are made each pay period by the employee and the employer, at the end of 30 years or so, the bulk of the monthly pension payments will be coming from proceeds of investments made during the intervening years.

And so we applaud Ohio Attorney General Richard Cordray, who has been pursuing a federal case for nearly a year aimed a holding investment houses responsible for what they did with billions of dollars put into their care by various Ohio pension funds.

Cordray’s lawsuit alleges that Bank of America, during merger negotiations in 2008, agreed to allow Merrill Lynch to pay up to $5.8 billion in accelerated year-end bonuses to its executives and employees, but failed to disclose that information to shareholders before they voted to approve the merger. The suit also claims that Merrill Lynch and Bank of America senior officials were aware of billions of dollars in losses by Merrill Lynch that shareholders were not told about before voting on the merger.

The plaintiffs

Cordray’s suit was fled on behalf of the Ohio Public Employees Retirement System, which held more than 10 million Bank of America shares when the merger was announced, and the State Teachers Retirement of Ohio, which held more than 8 million shares. The Teacher Retirement System of Texas and two European public pension funds are also plaintiffs.

U.S. District Court Judge Kevin Castel dismissed financial advisers to the bank from the case, which appears consistent with U.S. Supreme Court rulings in recent years that have made it more difficult to hold outside accountants and advisers liable for shareholder losses.

But the judge didn’t dismiss Cordray’s case against Bank of America, Merrill Lynch and various individual officers and directors and Cordray says he will pursue the case aggressively.

Cordray’s claims that various bank officials made false claims in proxy statements regarding the bonuses paid and losses suffered will be argued in court.

This case is important not only to Ohio’s pension funds and the state’s taxpayers, but to all investors, who must be able to rely on the honesty of statements provided by any company’s officials to shareholders.

If shareholders do not have a reasonable belief that they are being given accurate information on which to make investment decisions, they’ll stop investing.

If company insiders can unduly enrich themselves and their allies while shareholders pay the price, the system will eventually collapse.