>US District Judge John Lungstrum of the US District Court for the District of Kansas ruled that participants could proceed with their allegations that the Sprint directors were liable as cofiduciaries for the inadequate monitoring of appointed committee members and for not taking action when they learned that the plan had imprudently invested in Sprint stock.
>The allegations stem from two events in 2000: Sprint’s failed merger with WorldCom and Sprint’s marketing program that targeted poor credit customers for wireless service – two events which the suit alleged caused Sprint’s credit rating to be lowered to just above junk-bond status
>A group of participants in Sprint’s three 401(k) plans filed the suit against the company, its board of directors, the plans’ administrative committee, and the plans’ directed trustee alleging they breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by:
- allowing the participants to purchase and hold shares of Sprint stock
- permitting Sprint stock to remain as an investment option under the plans
- negligently misrepresenting and failing to disclose material information to participants concerning the plans’ investment in Sprint stock
- not telling participants of the anticipated failure of the WorldCom merger.
>According to the allegations, directors knew both public and non-public information indicating Sprint stock was no longer a prudent investment. Company officials incorporated misleading information into the plan’s summary plan description, knowing that participants would rely on it in making investment decisions, plaintiffs allege. “Misinformation in the financial statements artificially inflated the market price of Sprint securities, thus making Spring an imprudent investment,” the court quoted the plantiffs as alleging.
>In May, Lungstrum dismissed the participants’ assertion that Sprint’s directors breached their fiduciary duties because the directors were not plan fiduciaries. However, Lungstrum found that the directors could be sued for failing to monitor members of the plans’ administrative committees, who were appointed by the directors.
>In its most recent decision, the court dismissed the participants’ co-fiduciary duty claims brought against the remaining Sprint defendants. According to the court, the participants’ latest lawsuit didn’t specify how each of the nondirector Sprint defendants enabled co-fiduciary breaches.
>The case is In re Sprint Corp. ERISA Litigation, D. Kan., No. 03-2202-JWL, 9/24/04).