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Bad investment means Kansas City-based DST must pay back millions to employees

Carlos Moreno
KCUR 89.3
Hundreds of employees have submitted claims and 214 out of 342 have received awards in their favor. Another 61 are awaiting awards.

The claimants alleged that DST violated federal law by investing a disproportionate amount of their 401(k) assets in the stock of a single pharmaceutical company.

Kansas City-based DST Systems Inc. has been ordered to pay tens of millions of dollars to employees who claimed the information processing giant concentrated “an enormous and imprudent” amount of its profit-sharing plan in a single pharmaceutical stock.

The company has been hit recently by a slew of arbitration awards, which have been confirmed by a federal judge. As of last month, the awards, along with attorneys’ fees, amounted to more than $36 million, according to Ken McClain, a lawyer for the employees.

Scores more claims are pending, making it likely the total will greatly exceed that amount.

Things came to a head a week ago when U.S. District Judge Nanette Laughrey confirmed arbitration awards for 20 employees. The awards ranged from a low of $17,823 to a high of $900,148.

DST officials could not be reached for comment.

The claimants alleged that DST violated federal law by investing a disproportionate amount of their 401(k) assets in the stock of Valeant Pharmaceuticals in 2015 and 2016.

Last year, Valeant paid a $45 million penalty to settle charges by the Securities and Exchange Commission of “improper revenue recognition and misleading disclosures in SEC filings and earnings presentations.”

The arbitration cases began as a would-be class action lawsuit filed by a DST employee in 2017, on behalf of workers who were part of the company’s profit-sharing plan. But a judge agreed with DST that the employees’ claims should instead be arbitrated on a case-by-case basis and dismissed the class-action suit.

Hundreds of employees then submitted claims. According to Laughrey’s ruling, 214 out of 342 have received awards in their favor. Another 61 are awaiting awards.

Then, when another worker who was participating in the profit-sharing plan filed a class-action lawsuit in New York City against DST and the plan’s investment manager, DST took the opposite position, agreeing with that plaintiff and insisting the claims should be filed as a class-action.

But Laughrey pointed out that would be “patently unfair” to the workers who had arbitrated their claims in good faith.

“Somehow they thought they were going to pull one over on everyone’s eyes after alleging that we had to arbitrate and that they could wipe it all out with this mandatory class for pennies on the dollar,” McClain said.

In August, a federal judge in New York rejected DST’s request to approve a $79 million settlement with plan participants. The judge criticized a provision in the settlement that barred the U.S. Secretary of Labor from bringing or prosecuting their claims.

DST was acquired nearly four years ago by SS&C Technologies Holdings Inc. for $5.4 billion. Hundreds of DST employees were let go not long afterward.

DST was founded in 1969 as a subsidiary of Kansas City Southern Industries to track movements on their railroad and to develop an automated recordkeeping system for KCSI’s mutual fund management company.

It was spun off in the 1990s and grew to become one of Kansas City’s largest private employers, with thousands of employees based here and more than 13,000 employees worldwide.

Since its acquisition by SS&C, its local employment has dwindled to 2,866, according to the Kansas City Business Journal. That was still good enough to rank it 15th on the Business Journal’s list of Kansas City’s largest private-sector employers.

As a reporter covering breaking news and legal affairs, I want to demystify often-complex legal issues in order to expose the visible and invisible ways they affect people’s lives. I cover issues of justice and equity, and seek to ensure that significant and often under-covered developments get the attention they deserve so that KCUR listeners and readers are equipped with the knowledge they need to act as better informed citizens. Email me at dan@kcur.org.
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