(CN) – The Indiana State Teachers Association, UBS Financial Services and Morgan Stanley screwed up public schoolteachers’ pension fund investments so badly the plan faces a $67 million deficit and 650 disabled teachers will lose their long-term benefits this month, teachers say in a class action in Marion County Court, Indianapolis. Teachers say that 88 percent of the pension funds were put into “hedge funds, derivatives, private equities, and long-term real estate investments,” which are “extremely volatile, inherently high-risk, illiquid, and presently are virtually worthless.”
“These investments were drastically ill-suited for investment of insurance trust funds, which are intended to protect Plan participants in times of need due to health issues or disability,” the complaint states.
Teachers say that until recently the pension money was put into “conservative, and far more appropriate, investment vehicles such as United States Treasury Bonds.”
But they say that “the Plan engaged in an extremely high volume of investment trades in 2008 for a portfolio of this size, which is reflective of an inappropriately high-risk investment strategy. This high volume of trades generated a correspondingly high amount of commissions for [defendants David M.] Karandos, Morgan Stanley, and UBS.”
Karandos is an investment adviser and broker who worked for UBS and then Morgan Stanley, and whom the teachers blame for the “inappropriate investments.”
The defendant ISTA has relinquished control of the trust fund to the National Education Association, which appointed Edward Sullivan sole trustee of the Plan. The teachers say their trust agreement calls for nine trustees. They want eight other trustees appointed to serve with Sullivan.
The teachers are represented by Irwin Levin with Cohen & Malad.