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Oct. 3 — A Florida optometry practice is the latest small employer to be sued for 401(k) mismanagement, with a newly filed lawsuit accusing the practice of over-investing in alleged “patent troll” VirnetX ( McClain v. Poppell , N.D. Fla., No. 3:16-cv-00502, complaint filed 9/30/16 ).
The lawsuit, filed Sept. 30 as a proposed class action, alleges that the founder of Emerald Coast Eye Institute LLC, Dr. Samuel Poppell, managed the company’s 401(k) investments, despite having no background or qualifications in investment management. Poppell directed a significant portion of the plan’s assets into the stock of VirnetX, a company that allegedly specialized in acquiring patents and attempting to bring litigation against violators of those patents, according to the complaint. Poppell learned of VirnetX through “online message boards and unqualified or speculative investment blog-type websites,” the complaint alleges.
The 401(k) plan had fewer than 30 participants during the past year and ended 2015 with just over $300,000 in assets, according to Emerald Coast’s most recent government filings. This amount is significantly smaller than two of the smallest companies targeted in the recent wave of 401(k) litigation, Checksmart Financial LLC and LaMettry’s Collision Inc., which held $25 million and $9 million in 401(k) assets, respectively.
This newest lawsuit takes particular aim at Emerald Coast’s decision to concentrate plan assets so heavily in VirnetX stock. The plan held more than half its assets in VirnetX stock by the end of 2014, with the remaining assets invested in cash equivalents, the complaint contends.
Plan participants lacked the ability to choose specific investments for their retirement savings and were instead beholden to the choices made by Poppell, the complaint says.
VirnetX’s poor performance caused the plan to suffer actual losses of more than $600,000 and “underperformance damages” of more than $500,000, the complaint alleges. VirnetX lost 50 percent of its value in a single day in 2014 and declined more than 90 percent since June 2012, the complaint says.
On Sept. 30, the same day this lawsuit was filed, VirnetX won a $302 million jury verdict in a patent infringement lawsuit against Apple Inc. concerning the tech giant’s FaceTime video messaging platform. VirnetX stock jumped significantly in the early minutes of trading on Oct. 3.
In addition to challenging the plan’s investment strategy, the two Emerald Coast employees who filed the lawsuit claim that they were terminated in retaliation for raising concerns about the plan’s mismanagement.
Emerald Coast, which has three locations, didn’t immediately respond to Bloomberg BNA’s request for comments.
The complaint was filed in the U.S. District Court for the Northern District of Florida by Levin Papantonio.
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Text of the complaint is at http://www.bloomberglaw.com/public/document/MCLAIN_et_al_v_POPPELL_et_al_Docket_No_316cv00502_ND_Fla_Sept_30.
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