BlackRock Inc has won the dismissal of a lawsuit claiming it looted securities-lending revenues from iShares exchange-traded funds investors, with a U.S. judge ruling the plaintiffs did not have a right to bring the case against the money manager.
The lawsuit, filed in January, claimed that the iShares exchange-traded funds provided "grossly excessive compensation" to BlackRock, which was hired to advise and manage the funds.
The complaint alleged that BlackRock arranged for affiliates of iShares to take at least 40 percent of securities lending revenues and sought to recover what it called the "entirely disproportionate" amount.
The plaintiffs are the Laborers' Local 265 Pension Fund of Cincinnati and the Plumbers and Pipefitters Local No. 572 Pension Fund of Nashville.
But in a ruling Wednesday, U.S. District Judge Aleta Trauger in Nashville, Tennessee ruled that an agency relationship like BlackRock's is typically prohibited by the Investment Company Act of 1940, the U.S. Securities and Exchange Commission had issued an exemption in this case in 2002.
As for other provisions of the federal law relied on by the plaintiffs, Trauger said private investors don't have a right to bring claims under them.
While the judge granted BlackRock's motion to dismiss, she gave the plaintiffs until September 17 to seek permission to file an amended complaint.
Christine Hudacko, a spokeswoman for BlackRock, said the firm was pleased with decision. Brian Robbins, a lawyer for the pension funds at the law firm Robbins Arroyo, did not respond to a request for comment.
The case is Laborers' Local 265 Pension Fund, et al v. iShares Trust, et al., U.S. District Court, Middle District of Tennessee, No. 13-00046.
(Reporting by Nate Raymond in New York; Editing by Edwina Gibbs)