Securities Fraud May Also Mean Breach of Duty to
Employees
Corporate insiders who disseminate false information about a company's
finances or business prospects may also be liable to employees who
have invested in the company through 401K plans. The Employee
Retirement Income Security Act (ERISA), which governs pension and
health and welfare plans, contains strict provisions which impose a
"fiduciary" or special duty of care on those corporate insiders who
are trustees of 40lK retirement plans. Under ERISA's fiduciary duty
standards found at 29 U.S.C. § 1004, et. seq., trustees must discharge
their duties "solely" in the interests of plan participants and
beneficiaries. Trustees may violate ERISA's fiduciary duty provisions
where they take action to induce employees to invest in company stock
without disclosing problems in the company's financial statements or
problems with a particular product line.
Workers who have invested in their company
through the 401K plan and lose money when the stock is victimized by
securities fraud have viable redress under ERISA which provides for
class-action relief against corporate wrongdoers. These types of ERISA
cases are separate and apart from litigation brought under the federal
securities laws but may be consolidated for pretrial case management
with existing securities litigation.
