Disney savings plan sued over Sequoia Fund investment

A participant in the Disney Savings and Investment Plan has sued plan executives alleging breach of fiduciary duty because of the plan’s holdings in the Sequoia Fund, a mutual fund.

The lawsuit said Disney plan executives should have removed Sequoia Fund from the investment lineup “when it became apparent that the fund was no longer a suitable investment for participants’ retirement savings.”

The lawsuit, Du Vall vs. The Investment and Administrative Committee of the Walt Disney Co., seeks class-action status. It was filed June 28 in U.S. District Court in Los Angeles.

The Disney plan had $5.81 billion in assets as of Dec. 31, 2014, according to the latest Form 5500 filing with the Department of Labor. The Form 5500 said the plan participants invested $509.6 million in the Sequoia Fund as of Dec. 31, 2014.

The lawsuit argued that plan managers should have paid closer attention to the fact that the Sequoia Fund at one point in 2015 had more than 30% of its assets in a single stock — Valeant Pharmaceuticals International Inc. The lawsuit said that such an investment violated the plan’s policies regarding diversified investments.

“Defendants knew or clearly knew or should have known that the Sequoia Fund was an imprudent investment,” the lawsuit said. “The Sequoia Fund’s major investment in Valeant, with its unconventional business model and non-traditional financial statements and metrics, was diametrically opposed to the fund’s value policy.”

Valeant’s practices “led to a substantial fall in its stock price in September 2015 that significantly affected the Sequoia Fund’s performance,” the lawsuit said. Even when the stock continued falling and two independent directors resigned from the Sequoia Fund board in October 2015 over the Valeant investment, the Disney plan retained the Sequoia Fund, the lawsuit said.

From a peak of $263 a share in August 2015, Valeant’s stock closed Wednesday at $23.06. Zenia Mucha, a Disney spokeswoman, didn’t respond to a request for comment by press time.

Robert Steyer is a writer with Pensions & Investments