Investors of iShares Trust, (“iShares”), a investment management company, filed a federal class-action lawsuit against the company and certain of its directors and officers alleging, among other things, violations of Section 80a-13 of the Investment Company Act of 1940 (the “ICA”) as a result of iShare’s investment of 11 percent of a corporate bond fund, approximately $400 million of the fund’s total net assets, in Lehman Brothers (“Lehman”) subordinated bonds on the eve of Lehman’s demise. Squires v. iShares Trust, et al., No. 09-2077, (N.D. Cal. filed May 12, 2009).
According to the complaint filed by lead plaintiff Kathryn Squires, iShares materially deviated from the fundamental policy of its iBoxx $ Investment Grade Corporate Bond Fund (the “Fund”) set forth in the Fund’s registration statement, when on September 12, 2008, Barclays Advisors, on behalf of iShares and the Fund, purchased $387,450,000 of Lehman 6.75% Subordinated Notes due July 17, 2037. The complaint alleges that the purchase of those bonds violated the ICA because (1) the purchase grossly exceeded the Fund’s permissible concentration of investment in such Lehman bonds as determined by the Fund’s Underlying Index (the “Index”); (2) the purchase did not reflect an appropriate tracking of the Index; (3) the bonds did not have fundamental characteristics and liquidity measures similar to those of the Index and (4) the purchase was a wholly speculative investment not related to the Index.
Plaintiff alleges that iShares’ misconduct in investing in Lehman bonds a day prior to Lehman’s filing for Chapter 11 bankruptcy resulted in a zero percent recovery for the investors. Plaintiff seeks unspecified compensatory damages on behalf of the class.
For a copy of the Complaint, please click here.