Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...
June 27 — L-3 Communications Corp. workers filed a class action against the company, arguing that an accounting fraud scheme cost them millions of dollars in retirement savings held in company stock ( Dodd v. L-3 Comm. Corp. , S.D.N.Y., No. 1:16-cv-04930, complaint filed 6/24/16 ).
According to the workers, the people running the company's retirement plan continued to invest more than $900 million in L-3 stock, despite having knowledge that the stock was artificially inflated because of an ongoing accounting fraud. Once revealed, this fraud caused a one-day drop in stock price of 12 percent and had a “long-term damaging impact on the Company's reputation,” the workers alleged.
L-3 creates military and civilian electronics equipment, including the “black boxes” used on aircraft. It bills itself as one of the top 10 defense contractors in the world.
The lawsuit was filed by Zamansky LLC, a New York-based plaintiffs' firm currently litigating similar cases against IBM Corp., Whole Foods Market Inc. and American Express Co. Earlier this year, the firm reached a $4.5 million settlement in a lawsuit against J.C. Penney Corp. and a $6.25 million settlement with Avon Products Inc.
According to the complaint, nearly 63,000 L-3 workers stand to benefit from the lawsuit, if it's successful.
The lawsuit—which alleges L-3 committed fiduciary breaches in violation of the Employee Retirement Income Security Act—comes at a time when courts are struggling to interpret the U.S. Supreme Court's recent decision creating new pleading standards for ERISA lawsuits based on declining employer stock.
In lawsuits like this, which accuse plan fiduciaries of having inside knowledge of an ongoing fraud that affected stock prices, the Supreme Court has instructed that plan participants must identify an alternative action that plan fiduciaries could have taken instead of continuing to invest in employer stock. That action must be consistent with securities laws and not, in the view of a prudent fiduciary, likely to do more harm than good to the value of company stock.
The task of interpreting these instructions may fall to the U.S. Court of Appeals for the Fifth Circuit, which is currently hearing a lawsuit involving BP Plc's Deepwater Horizon oil spill. In that case, the Fifth Circuit has received briefs from the Department of Labor and the Securities and Exchange Commission attempting to flesh out the standard created by the Supreme Court.
For their part, the L-3 workers argue that the company could have closed the retirement plan to new L-3 stock purchases or issued “truthful or corrective disclosures to cure the fraud.”
L-3 didn't immediately respond to Bloomberg BNA's request for comments.
The lawsuit was filed June 24 in the U.S. District Court for the Southern District of New York.
To contact the reporter on this story: Jacklyn Wille in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Text of the complaint is at http://www.bloomberglaw.com/public/document/Dodd_et_al_v_L3_Communications_Corporation_Docket_No_116cv04930_S.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)