The City of Burlington, Vt. has agreed to a roughly half million-dollar settlement with Morgan Stanley, the former investment consultant for its Employees’ Retirement System (BERS), after claims surfaced of substantial financial damages as a result of its “alleged misconduct.”

From 1991 to 2006, the global financial services firm served as a consultant and advisor to the City and its retirement board. During this period, the City claimed in its 2010 arbitration filing with the Financial Industry Regulatory Authority (FINRA) that concerns were first raised following a pension board review.

At the time, Edward Siedle, an independent investment consultant, and St. Louis-based law firm Schlichter, Bogard and Denton (SBD) “were retained to investigate and provide advice to the city,” the arbitration document stated. 

As a result of this investigation, City Attorney Ken Schatz explained at a February 8, 2010 Council meeting that “Morgan Stanley’s practices of “pay-to-play” harmed the fund and represented a conflict of interest…resulting in a loss of millions to the retirement fund.”

Despite its own internal investigation, the two parties agreed to a Morgan Stanley payout of about $495,000, Jerome Schlichter, the attorney who represented the city with the FINRA arbitration, told IMMP

The managing partner of the law firm disclosed that the process has allowed the City to have a “thorough look at practices that were going on in the arrangement, and that justice was accomplished.”

“Both parties thought it was in their best interest to settle,” Schlichter said in a conversation today.

He explained that the system has since moved forward. He stated Dahab Associates was selected to replace Morgan Stanley when it was terminated.

As a response to the agreed upon settlement, Christine Pollak, executive director of corporate communications for Morgan Stanley Smith Barney, disclosed in a company statement that the financial company “settled this case at the request of the City of Burlington after four days of arbitration hearings, without admitting and strongly denying any liability, for its defense costs to complete the remainder of the arbitration.”

The statement listed that the settlement rounded out to be  “approximately 1% of the $40-plus million in compensatory damages the City of Burlington sought at the outset of the arbitration.”

“The result speaks for itself and vindicates Morgan Stanley’s position that the City of Burlington’s claims were completely unmeritorious,” Pollack disclosed.

Presently, according to the Vermont City’s 2010 Annual Financial Report, BERS assets have reached $118.8 million thanks to a 19% increase in assets from investments last year. The more than 1,500-member system was approximately 72.8% funded for the year that ended June 30.

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