As expected, Sprenger & Lang, a Washington, D.C. law firm, has filed a class action lawsuit against New York Life on behalf of James A. Mehling in federal district court in Philadelphia. Mehling was president and chief investment officer of Monitor Capital Advisors -- a subsidiary of the insurer.

The suit alleges that the insurer of "improperly manipulating the assets of its own pension and 401(k) plans for corporate gain, and illegally firing him in an effort to prevent him from blowing the whistle on the fraudulent scheme".

Other law firms participating in the suit are Stief, Waite, Gross, Sagoskin & Gilman of Bucks County, Pennsylvania; and Sandals, Langer & Taylor, based in Philadelphia.

The plaintiffs have also created a Web site with details of the lawsuit at www.NewYorkLifeSuit.com.

The core issue in the suit is the allegation that New York Life, by using its proprietary MainStay Institutional Funds as investments in two defined benefit plans and two defined contribution plans, harmed plan participants and benefited New York Life.

The suit was brought under the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Employee Retirement Income Security Act (ERISA). According to the attorneys, it "seeks hundreds of millions of dollars in damages and disgorgement of ill-gotten gains."

According to the plaintiff's counsel, the suit contends that in 1991, rather than create and finance a new line of institutional mutual funds using its own capital, the insurer "raided" its pension plans and converted hundreds of millions of dollars of the plans' assets into seed money for the new funds.

Sprenger & Lang also contends that what it describes as a "self-dealing scheme" continued in 1994 and 1995, when NYL created additional MainStay institutional funds. It claims that these funds were seeded with assets in the "hundreds of millions of dollars" coming from the retirement plans.

"Since then, the MainStay institutional funds have depended on the continued use of the plans assets for their very existence because their fees are too high and their performance too spotty to attract sufficient outside investors. Without those captive assets of the Pension and 401(k) Plans the MainStay institutional funds would collapse," the attorney's argue.

Eli Gottesdiener, a partner with the Washington, D.C. office of Sprenger & Lang, further claims that: "No prudent and loyal fiduciary would have placed the assets of the plans, especially the pension plans, in even the lowest-cost mutual funds. Although a mutual fund may be an appropriate investment vehicle for relatively small investors, it is entirely inappropriate for large pension plans like the multi-billion dollar NYL Pension Plans, which can obtain expert, individualized investment management services for a fraction of the cost of even the least expensive mutual fund." 

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