Mirant Lawyers: K Plan Fiduciaries Committed No Misdeeds

January 27, 2004 (PLANSPONSOR.com) - In an effort to get a potential 401(k) class-action lawsuit against it thrown out, bankrupt Mirant Corp. has argued that fund fiduciaries were never required to diversify plan holdings out of company stock.

Besides that, lawyers for the energy company insist, employee plans were aimed at bolstering Mirant’s stock sales and not to earn employees the maximum return on their investments, according to court papers filed this month, the Fulton County Daily Report said.    The 401(k) plans were crafted to interest employees in becoming shareholders and to give them an easy way to buy stock, court documents say

Mirant’s matching contributions to the company retirement plans and its profit-sharing contributions were invested in Mirant stock, even if employees had selected other mutual funds, according to Mirant.   But Mirant attorneys argue that employees never were required to invest their own contributions in Mirant. The attorneys also say that contributors immediately could transfer funds invested in Mirant to any of the plan’s 11 other options.

By the end of 2001, Mirant’s retirement savings plan held assets of more than $129 million, according to the dismissal motion. Of that, $16.4 million, or 12.7%, was invested in Mirant stock. In 2001, a separate retirement plan for unionized employees had invested nearly 10% of its holdings in Mirant stock.

Filed in US District Court, the assertions are part of Mirant’s motion to dismiss a nine-month-old lawsuit filed by employees and retirees over the collapse of their 401(k) plan accounts (See  Energy Retiree Files ERISA Violation Sui  ).

An Energy Probe

The energy marketer became the target of litigation in California and a related inquiry by the US Federal Energy Regulatory Commission in 2002, according to the newspaper. Once the probe was revealed, Mirant’s stock prices plummeted from a 2001 high of nearly $50 a share to less than $4 a share – and with it, the value of the employee’s retirement accounts.

Last year, faced with a slew of suits alleging it illegally manipulated the California energy market while artificially inflating its stock prices, Mirant declared bankruptcy in Fort Worth, Texas. Since July, it has been reorganizing under Chapter 11 of the US Bankruptcy Code.

According to Mirant’s news releases and SEC filings, the energy marketer had “minor accounting adjustments” that included re-audits of its 2000 and 2001 SEC filings and the announcement that it had overstated earnings in both years by a total of $188 million.   Mirant’s restated net income for 2000 dropped 8%, from $359 million to $330 million. In 2001, its restated income fell 28%, from $568 million to $409 million, according to SEC filings.

In company releases, Mirant has stated that its auditors found no fraud, while acknowledging that the SEC had begun conducting an “informal inquiry” in 2002. That inquiry became a formal investigation in February 2003, and is ongoing, according to SEC filings.

Mirant’s attorneys insist that no one with fiduciary responsibility for the 401(k) funds had access to secret information about alleged improprieties prior to their release by public officials in California and in SEC filings.

But attorneys also argue that participants in Mirant’s retirement plans “are obviously not entitled to more or better information than the public markets” — a potential violation of federal securities laws banning insider trading.   Mirant’s situation is different from that Enron and WorldCom, the lawyers argued, because allegations against Mirant were made public earlier.