Principal Financial Group Inc. Principal Financial, Principal Insurance Company, Principal Principal Financial Group Inc; Pays $3.2-Million in Westgate Ponzi Settlement Des Moines Iowa

Principal Financial Group Inc; Pays $3.2-Million in Westgate Ponzi Settlement

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Law 360, New York

Principal Financial Group Inc. has agreed to pay $3.2 million to settle a class action alleging that the company let its retirement account holders unwittingly invest in an alleged Ponzi scheme run by Westgate Management LLC , the plaintiffs said in documents filed in New York federal court Thursday.

The case is Grund et al v. Principal Financial Group, Inc. et al, case number 09-CV-8025, in the United States District Court for the Southern District of New York.

The proposed settlement, which would pay back the retirees 5.5 percent of their estimated losses from the scheme, was filed with the Southern District of New York. The parties asked U.S. District Judge Robert W. Sweet to approve it quickly, both hoping to avoid the costs and delays of continued litigation. 

“This settlement consideration is eminently fair, equitable and reasonable in light of the substantial risks in proving the merits of this case, the further risks created by defendants’ inability to pay a greater judgment, the total amount in controversy and the other pertinent facts,” the plaintiffs said in the memorandum Thursday. 

The class action was brought in September 2009 against Principal on behalf of individuals and businesses who held pension or individual retirement accounts in custody and trust with Principal and whose funds were then invested with Westgate, an alleged $140 million Ponzi scheme led by James Nicholson. 

Nicholson lured investors with false claims that several of Westgate's funds exceeded performance of the S&P 500 nearly 100 percent of the time, but actually used the invested funds for his own benefit, according to the SEC. 

The plaintiffs argued that Principal failed to perform required reviews that would have ensured that the investments made on behalf of proposed class members' IRAs, 401(k)s and other retirement accounts were safe, violating its obligations as a custodian of the accounts. 

After a New York federal judge twice refused to dismiss the case, the parties agreed to engage in initial settlement discussions in 2011. Following a series of failed negotiations, the parties conducted a second formal mediation in February 2012 to set the initial terms of the deal, which has undergone several rounds of review since then. 

Class members estimated a total of $58-million in losses suffered as a result of the Nicholson Ponzi scheme, and they noted that a government action against Nicholson has already recovered most of the money they could reasonably expect to get back. 

The proposed settlement represents an additional 9.85 percent on top of the government recovery, money that otherwise would never have been available to the class, said the memorandum.

According to a spokeswoman for the company, Principal still denies the allegations and any liability but agreed to the proposed settlement in order to avoid the costs and distractions of prolonged, expensive litigation. 

"Principal Trust IRA owners decide for themselves what investments they want for their accounts," the spokeswoman said. "Principal Trust was not aware of and did not participate in the securities violations committed by Westgate Capital Management. Principal Trust acts solely at the discretion of IRA owners and has no role in participants’ investment choices." 

The plaintiffs strongly urged the judge to approve the settlement, which was preliminarily approved in April and has not been opposed by any class members in court, citing potential difficulties in establishing liability and maintaining the class should the case continue. The class members, who are mostly elderly or retired, hope to receive the recovery money as soon as possible. 

The class is represented by Christopher Lovell, Victor E. Stewart, Benjamin M. Jaccarino, and Fred T. Isquith, Jr. of Lovell Stewart Halebian Jacobson LLP and by Jacob H. Zamansky and Edward H. Glenn Jr. of Zamansky & Associates LLC. 

Principal Financial is represented by Dorothy Spenner, Joel S. Feldman, Michael C. Andolina, Kevin M. Fee, and Simone R. Cruickshank of Sidley Austin LLP. 

--Additional reporting by Ian Thoms. Editing by Stephen Berg.