Monday, September 22, 2008

Wall Street Collapse = ERISA Stock Drop Litigation

Graphup Not surprising development at all.  From BNA Daily Labor Report (subscription required):

As several heavy hitters in the financial world have come under pressure or have gone bankrupt in the past couple of months because of the subprime mortgage and lending crisis that has battered investment firms and banks, the employer "stock drop" cases that proliferated in the post-Enron Corp. and post-WorldCom Inc. age are on the rise.

Although the Employee Retirement Income Security Act claims raised in these stock drop cases have not been identical, there are two central claims that arise in these cases. The first claim typically raised is that the plan fiduciaries breached their duties by offering company stock as a plan investment option when the stock was an imprudent or unwise investment. The second claim focuses on the disclosure obligations of the plan fiduciaries and often alleges that the fiduciaries breached their duties by not telling plan participants of financial matters of the plan sponsor that made the sponsor's stock an imprudent investment.

Among firms that recently have been hit with stock drop lawsuits are Lehman Brothers Holdings Inc., American International Group Inc. (AIG), Bear Stearns, Wachovia Corp., UBS, IndyMac Bank, and Fifth Third Bancorp.

I have written abut this type of stock drop litigation before.  The issues at the forefront are how ERISA is overtaking securities as the litigation vehicle of choice by plaintiffs who suffer stock losses and how these cases almost never make it to trial because the firms being sued are forced to settle if certification of the class is granted by the court.

Given the financial pain being felt by everyone these days, and with little hope of an end being in sight, I would suspect courts to either cut down on certification of these classes or for a movement by the corporate lobby to amend ERISA to cut down on these types of suits.


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This is unfortunate, but it should serve as a wake up call to all American investors. If you want to protect your money, you need to diversify and invest at least some of it overseas. These are hard times for American investing firms. I personally use offshore bank accounts and they have helped me with diversification and asset protection. If you want to read more on why offshore investing is smarter, feel free to visit my website.

Frank Miller

Posted by: Frank Miller | Sep 28, 2008 10:59:09 PM

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