This one could become a Hollywood script – the retirement fund of the American Federation of Radio and Television Artists is suing one of the nation’s most important financial institutions, JPMorgan Chase. The dispute centers around an investment vehicle in which AFTRA invested on behalf of its membership. The link below is to a new article about the law suit in the New York Times suggesting that the bank protected its own interests instead of those of its client.
But one interesting question is what a union pension fund was doing investing in the complicated offshore deal in the first place.
A new brief just filed by AFTRA (actually the AFTRA Retirement Fund Board of Trustees, which is made up of union and management representatives) tells its side of the story of course but it appears AFTRA invested in a multibillion dollar fund called Sigma, though its asset manager, JPMorgan. Sigma was a so-called “Structured Investment Vehicle” or SIV which consisted of a number of underlying investments sitting offshore in a tax haven, in this case the Cayman Islands.
When the Sigma fund began to get into trouble, JPMorgan engaged in loans to the fund that helped generate fees for the bank but failed to withdraw AFTRA’s investment in time to avoid huge losses. AFTRA’s law suit raises some important questions about fiduciary duty. But one wonders, what about AFTRA’s fiduciary obligation to its members? When it was approached by the bank about dumping millions of dollars of actors’ money into an offshore tax haven, did it consider the risks sufficiently?
The untold side of the credit crisis is that all too often it is pension funds and health care retirement plans funded by workers’ incomes that fed the flames.