Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
A Florida optometry practice agreed to pay $180,000 to settle a class action challenging its decision to over-invest 401(k) assets in alleged “patent troll” VirnetX.
The deal resolves a lawsuit claiming Emerald Coast Eye Institute and its founder, Dr. Samuel Poppell, directed a significant portion of the 401(k) 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. Poppell, who allegedly had no background in investment management, learned of VirnetX through “online message boards and unqualified or speculative investment blog-type websites,” according to the lawsuit.
The $180,000 settlement is in addition to a deal between Emerald Eye and the Labor Department in which the company agreed to reimburse workers’ out-of-pocket losses plus some interest, settlement papers indicate. VirnetX’s poor performance—it allegedly lost 50 percent of its value in a single day in 2014 and declined more than 90 percent since June 2012—caused the plan to suffer actual losses of more than $600,000 and “underperformance damages” of more than $500,000, according to the complaint.
The lawsuit is noteworthy for being one of a growing number of class actions to challenge modestly sized 401(k) plans. Emerald Eye’s plan had 25 participants and less than $500,000 in assets during the period covered by this lawsuit, according to government filings. Most 401(k) class actions have been filed against plans with billions or hundreds of millions of dollars in assets, although recent cases have targeted auto body repair provider LaMettry’s Collision Inc. and Checksmart Financial LLC, both of which had less than $30 million in 401(k) assets. The case against LaMettry’s was voluntarily dismissed in 2016.
The Emerald Coast workers are represented by Levin Papantonio Thomas Mitchell Rafferty & Proctor PA, which stands to receive $36,000 in attorneys’ fees—20 percent of the settlement—if the deal is approved. The defendants are represented by Clark Partington Hart Larry Bond & Stackhouse.
The case is McLain v. Poppell, N.D. Fla., No. 3:16-cv-00502-MCR-CJK, motion for settlement approval 3/12/18. It’s pending before Chief Judge M. Casey Rodgers of the U.S. District Court for the Northern District of Florida.
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