BlackRock and American Airlines: Is Larry Fink the New Sam Bankman-Fried?
A federal case out of Texas decided on Friday, could be the first step in a long and painful march for institutional capital behemoth BlackRock and its Hard Left CEO Larry Fink. It’s not all that unrealistic to say that District Judge Reid O’Connor’s ruling might ultimately wipe out BlackRock — and quite likely spells the end of Environmental, Social, and Governance (ESG) investing pioneered by Fink and imposed on corporate America.
The case doesn’t directly involve BlackRock, though it’s fairly obvious others will. Instead, it’s a lawsuit by thousands of pilots and other employees of American Airlines (AA) against that company for violating its fiduciary responsibilities by allowing BlackRock to manage AA’s pension plans — when BlackRock was operating under ESG principles and trying to change the world rather than maximize value in those plans. As the New York Post reported:
A federal judge in Texas on Friday said American Airlines violated federal law by basing investment decisions for its employee retirement plan on environmental, social, and other non-financial factors.
The ruling by US District Judge Reed O’Connor appeared to be the first of its kind amid growing backlash by conservatives to an uptick in socially-conscious investing.
O’Connor said American had breached its legal duty to make investment decisions based solely on the financial interests of 401(k) plan beneficiaries by allowing BlackRock, its asset manager and a major shareholder, to focus on environmental, social and corporate governance (ESG) factors.
“The evidence made clear that [American’s] incestuous relationship with BlackRock and its own corporate goals disloyally influenced administration of the Plan,” wrote O’Connor, an appointee of Republican former President George W. Bush.
You can see this chasm opening up, can’t you? According to Bloomberg Law:
The 2023 lawsuit, which says the airline wrongly offered 401(k) funds managed by companies that pursue ESG policy goals through proxy voting and shareholder activism, is the latest battle in the broader debate over socially conscious investing.
A decision on the validity of these investment strategies in 401(k) plans would have ripple effects, particularly within the US Court of Appeals for the Fifth Circuit, which recently sent a case seeking to prevent enforcement of the Labor Department’s ESG-friendly investing rule back to district court.
According to O’Connor, the American pilots proved that the airline’s activities — which included hiring BlackRock Inc. to manage billions of dollars in plan assets despite its “ESG-oriented investing and proxy voting activism” — violated the Employee Retirement Income Security Act’s directive to act loyally and in the best interests of plan participants.
“ERISA does not permit a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim,” O’Connor said, asserting that ESG investments “often underperform traditional investments by approximately 10 percent.”
But the pilots failed to prove a violation of the statute’s prudence rule, he said, because the airline “acted according to prevailing practices and in a manner similar to other fiduciaries in the industry.” That’s true even though those standards may stem from BlackRock’s “alarming degree of control and influence over the retirement industry” — an industry O’Connor described as “incestuous” and full of “oligopolist or cartel-like behavior.”
The pilots’ prudence claim is best understood as an attempt to “shift industry standards” to better prioritize proxy voting oversight as an avenue for protecting workers’ financial interests, O’Connor said.
“Perhaps that shift should occur,” he continued. “And maybe at some point it will. But this future-looking goal reveals the fatal flaw underlying Plaintiff’s prudence claim: Defendants’ practices were not incongruent with the prevailing industry standards at the time.”
In other words, O’Connor is finding American Airlines in violation of ERISA because pursuing ESG goals that cost your clients/investors money makes you disloyal — and he opens the door to the next set of plaintiffs showing that doing so makes you imprudent as well.
Especially given his ruling.
The facts here compellingly established fiduciary misconduct in the form of conflicts of interest and the failure to loyally act solely in the Plan’s best financial interests. BlackRock’s ESG influence is evident throughout administration of the Plan. The belief that ESG considerations confer a license to ignore pecuniary benefits is mistaken. ERISA does not permit a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim. Plaintiff therefore proved by a preponderance of the evidence that American [Airlines] disloyally acted with an intent to benefit a party other than Plan participants and in a manner that was not wholly focused on the best financial benefit to the Plan.
To call this a shot across the bow of the ESG crowd isn’t so accurate. It’s more like a shot to the hull under the waterline.
Practice ESG investing and lose money doing so, and the precedent has now been set that you’re going to have ERISA problems if you’re running a pension plan or something else covered by that law. This means pretty much all institutional capital is going to either have to drop ESG like a hot potato, lawyer up, or wave goodbye to pension plan administrators who hit the road rather than get touched up in court like American Airlines just did.
Buck Throckmorton at Ace of Spades had this right…
American Airlines chose to use the personal savings of its employees’ 401k plan “to benefit a party other than the Plan participants.” Misuse of money by a custodian to which it has been entrusted is a form of theft, and that is what American Airlines and Black Rock did to American Airlines employees. The same is true for every other company allowing Black Rock to mismanage money in service to its anti-freedom political agenda.
There need to be criminal consequences for the individuals at these firms who chose to allow employees’ savings to be illegally misused. (Attention Ken Paxton.)
It isn’t a bad bet that Paxton or other state attorneys general — perhaps spurred on by state treasurers acting on behalf of various state pension plans administered by BlackRock, State Street, or Vanguard, all of whom prioritized ESG scores when making investment decisions — might pursue this criminally.
Were that to happen, Fink could find himself as the institutional capital version of FTX’s Sam Bankman-Fried, who used other people’s money to buy political influence and protection while he ran a shell game in the cryptocurrency markets.
BlackRock obviously has a bit more substance to it than Bankman-Fried’s operation did, but on the other hand, the violation of fiduciary responsibility that ESG investing has always clearly represented can’t be ignored.
ESG’s value proposition was always, “We’re going to use capital investment dollars to bully companies into compliance as we change the world according to our ideological aims.” This is a sound investment strategy only assuming two things are true: first, you can essentially corner the market on capital and make it so that no competing ideological positions have enough money to put into projects that will outperform those you favor.
And second, that your assumptions are based in reality.
Because if you fail at the first hurdle, there will always be someone with whom you disagree who will come along and disrupt the world you think you’ve got figured out.
And if you fail at the second, it isn’t just that somebody comes along and builds a better mousetrap. It’s that your ideas crash and burn on their own.
For example, trying to get an oil company like ExxonMobil to go green, which directly sends the stock price southward and costs your clients and investors quantifiable amounts of money. Which BlackRock did.
I’ve been waiting for a case like this to come along, and now it’s here.
And the avalanche could be coming with it.
The hubris of the globalist/ESG/DEI/Great Reset mob who have exercised such undue influence over the past 15-20 years on world markets and governments has been mindblowing. O’Connor’s ruling is just another data point to herald the coming of Nemesis to that hubris.
Get ready. This will be fun to watch.
READ MORE from Scott McKay:
Five Quick Things: The Sum of All Frauds in Los Angeles
You Get (and Deserve) What You Tolerate. That Isn’t Good News for the UK.
The post BlackRock and American Airlines: Is Larry Fink the New Sam Bankman-Fried? appeared first on The American Spectator | USA News and Politics.