Stock-Drop Case against UBS Tossed

March 29, 2011 ( – A federal judge in New York has thrown out a stock-drop lawsuit against UBS AG and UBS Financial Services Inc.

U.S. District Judge Richard J. Sullivan of the U.S. District Court for the Southern District of New York dismissed the action against the UBS companies after ruling plaintiffs would have to prove that plan fiduciaries abused their discretion in keeping company stock as a retirement plan investment  option– a bar he said plaintiffs were unable to cross. Sullivan said his ruling came despite the 69% drop in UBS share price.

As do many jurists handling stock-drop cases, Sullivan applied the presumption of prudence typically awarded to fiduciaries who offer company stock in their defined contribution plans. UBS’ difficulties did not rise to the level of “catastrophic failure” that would be necessary to overcome the presumption, Sullivan asserted.

“Given that, throughout the class period, UBS never reached the brink of imminent collapse, there remained a possibility that the value of UBS stock would rebound. In light of this possibility, and given that each plan presupposed that the fiduciaries would make the UBS Stock Fund available to plan participants, Defendants cannot be said to have abused their discretion,” the court said.

The UBS employees alleged that UBS stock was imprudent investment because of the share price decline from March 13, 2007, to October 16, 2008. The employees linked this substantial decline in UBS stock price to the impact of the housing market meltdown among other factors.

The case is In re UBS AG ERISA Litigation, S.D.N.Y., No. 1:08-cv-06696-RJS.