The suit alleges plan fiduciaries violated their duties
under the Employee Retirement Income Security Act (ERISA) by continuing to
offer the stock and maintaining the plan’s heavy investment in stock when it
was no longer prudent to do so. Defendants are also accused of failing to avoid
certain conflicts of interest that inhibited their ability to act in the best
interest of participants, and of failing to monitor persons to whom management
and administration of the plan was delegated.
The complaint filed in the U.S. District Court for the
Northern District of Illinois proposes to represent a class of plaintiffs who
were participants in or beneficiaries of the plan from July 26, 2007 to the
present. During this time, Donnelley’s main source of revenue, print
advertising, dropped off, and this, combined with the company’s long-term debt
from acquisitions of other companies up to the class period and bad debt from
credit extended to customers caused R.H. Donnelley to be a “seriously
troubled company,” the complaint says.
The company’s stock fell from a value of nearly $70 per
share to less than a penny per share.
The suit says defendants allowed the plan to stay heavily
invested in company stock even though they knew or should have known that:
- The company was not adequately reserving for its bad debts in violation of Generally Accepted Accounting Principles, causing its financial results to be materially misstated;
- The downward pressure the company was experiencing with its advertising revenue was not a cyclical change, but was due to a permanent shift in customers moving away from print yellow pages advertising;
- The company had far greater liquidity concerns and ratings downgrades than it had previously disclosed;
- Given the turmoil in the economy and the shift away from print advertising, the company had no reasonable basis for its projections about its 2008 results;
- The company’s stock price was artificially inflated as a result of its undisclosed problems; and
- The plan’s heavy investment in company stock would result in investment losses to the plans and to participants.
The suit seeks restoration of losses to the plan.
The complaint is here.