GM Sued Over 401(k) Investment in Company Stock

March 28, 2005 ( - Former employees of General Motors Corp. (GM) are suing the giant automaker over charges that the company improperly invested 401(k) assets in company stock.

The suit, filed by two former employees on March 18 in US District Court in Detroit, makes claims that the company “ignored several serious, nonpublic red flags that should have alerted them to the fact that General Motors’ stock was not a wise investment,” according to the Associated Press (AP).

The serious signs cited in the lawsuit include the company’s $2 billion payment to Fiat SpA to end a failed partnership, the company’s pension and health care obligations and the possible downgrade of GM’s credit rating to below investment grade, according to the AP. The suit asks that the company refund the losses to the 401(k) plans.

The suit was filed on behalf of former employees Al Balnius and Michael Pyrka only two days after the company warned that profits for 2005 will fall sharply, which sent share prices falling.

GMs response to the lawsuit was equally as quick. “We believe that the allegations … that GM should not have allowed its employees to invest in GM stock are absurd,” GM said in a statement, according to the AP.

The suit seeks class-action status for   all current and former employees who have lost money due to investment in company stock, according to the Detroit News. It also charges that GM has violated the federal Employee Retirement Income Security Act. Besides GM, CEO Rick Wagoner and 12 members of GM’s investment fund committee have been named in the suit.