High Court Sends Stock Drop Case Back for Further Consideration
Participants in an employee stock ownership plan (ESOP) filed a putative class action alleging that plan fiduciaries breached their duties of prudence and loyalty under the Employee Retirement Income Security Act (ERISA) in handling inside information, also known as a stock drop suit. The Southern District of New York dismissed the complaint for failure to state a claim and the Second Circuit reversed handing a rare victory over 401(k) plan sponsors to participants. The U.S. Supreme Court declined to act on the case vacating and remanding the appeals court ruling. In sending it back to the Second Circuit, the Court held the parties' briefing focused primarily on matters the Court of Appeals had not considered. The Supreme Court was asked to determine if the more-harm-than-good standard "can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time," the per curiam opinion said.