A federal judge in San Diego has unsealed court files, revealing that Frank Russell Company was sued for trade secret misappropriation, fraud, breach of contract, and breach of confidence, among other claims, by Freeman Investment Management Company (FIMCO) on November 29, 2013. In January 2014, Russell’s parent company, Northwestern Mutual, announced it was considering selling Russell, which is well-known for its investment index business. Earlier this week, it was reported that the London Stock Exchange is in exclusive discussions to acquire Russell.
The plaintiff, FIMCO, was founded by Mr. John Freeman, an investment manager and strategist with over 25 years of industry experience, including managing billions of dollars of institutional investors’ assets.
The suit alleges that Freeman devoted years of research to develop a new index approach based upon stock volatility. Russell signed a Non-Disclosure Agreement in December 2009 in connection with a venture to propagate “a new family of style indices based on extensive research performed by Freeman.” FIMCO alleges that Freeman divulged much of this extensive research to Russell, including ways to market and use the new volatility-based indices. Freeman proposed these as complementary alternatives to Russell’s two major, long-standing style metrics of size (large cap/small cap) and value/growth.
The suit alleges that after learning of Freeman’s confidential proposals and strategy, Russell did not proceed with the venture, but used Freeman’s confidential information anyway. In 2011, Russell publicly launched its so-called “Stability” indices without any notice, compensation, or attribution to Freeman. Russell touts these new volatility-based products as “The Third Dimension of Style” and has incorporated them widely throughout Russell’s investment management offerings.
When reached for comment, John Freeman stated: “In an industry where trust is so valued, I deeply regret that we have been forced to resort to legal action. However, I believe Russell has neither treated us fairly, nor lived up to its obligations. Our goal is not only to be properly recognized for our important contributions, but also to preserve an environment which promotes innovation by all independent researchers and makes those innovations accessible to benefit all investors.”
Freeman is represented by Knobbe Martens Olson & Bear LLP, with John B. Sganga leading the litigation team. The suit is before Judge Janis L. Sammartino in the United States District Court for the Southern District of California, Case No. 13-CV-2856.
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