Participants Accuse SBC of Self-Dealing in 401(k) Stock Sale
Focus on fiduciary
The suit, which is seeking class action status on behalf of 40,000 participants, alleges that the stock was sold without notice, and solely to enrich SBC. The suit has been brought on behalf of eighteen current and former SBC employees.
The complaint alleges that SBC violated its fiduciary duties by selling the stock for its own purposes, shortly before AirTouch stock would rise dramatically, did so with inadequate notice, and benefited from the reinvestment of those proceeds in SBC stock.
The plaintiffs were originally employees of Pacific Telesis Group (PTG), which “spun off” AirTouch Communications in April 1994. As a result of that spin-off, shareholders of PTG received AirTouch stock in proportion to their ownership in Pacific Telesis.
Share conversion
SBC acquired PTG in April 1997, at which point all PTG shares were converted to SBC stock, including those in the two PTG plans. However, participants with AirTouch stock holdings in the plan were permitted to retain that stock, following an affirmative election to do so as a “frozen fund” within the plan.
That same year the complaint alleges that SBC provided the plaintiffs and other participants with documents that implied they would be able to retain their AirTouch stock holdings in the PTG Plans indefinitely.
$635 million sale
That all changed in 1998, when SBC forced the sale of AirTouch (at the time about 11.5 million shares between the two plans) and reinvested the proceeds in SBC stock. Plaintiffs say they were provided “misleading, incomplete and untimely notice”. The AirTouch stock was sold for $635 million.
Left intact, that investment in AirTouch would have more than doubled. The suit alleges that a share of AirTouch in 1998 (valued at an average of $50/share) would be equivalent to 2.5 shares of today’s Vodafone AirTouch (valued at $48 11/16 at the April 19 close). The investment in SBC has remained relatively flat, resulting in an estimated net loss of $1.5 billion to affected participants.
No comment SBC
A statement from SBC said officials had not seen the lawsuit and could not comment on specifics. “However, our position on this issue is very clear,’ the company said. “No SBC savings plan includes direct stock ownership in any other company that is not related to SBC.” The statement also denied that SBC profited from the conversion of AirTouch stock.
Joining Washington, D.C.-based Sprenger & Lang, are Sigman, Lewis & Feinberg, PC, and Lieff, Cabraser, Heimann & Bernstein, LLP. Sprenger & Lang earlier brought the pending 401(k) class action suit against First Union. (see Plan Sponsor magazine, July/August 1999).
More information about the complaint and proceedings can be found at www.airtouchsuit.com
– Nevin Adams