Schmalz v. Sovereign Bancorp Inc., No. 2:08-cv-0085 (E.D. Pa. 4/17/12)

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Wed, Apr 25, 2012
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In Schmalz v. Sovereign Bancorp Inc., No. 2:08-cv-0085 (E.D. Pa. 4/17/12), a U.S. District Court applied the Moench Presumption of Prudence For Investment in Company Stock in ESOPs and dismissed the related claims. 

For the reasons set forth above, the defendants’ motion to dismiss plaintiffs’ claims that the defendants breached their fiduciary duties to prudently manage the Plan, to disclose complete and accurate information, to monitor fiduciaries, to be loyal, and committed breaches as co-fiduciaries, shall be granted and these claims are dismissed. 

The ESOP participants had alleged a breach of ERISA Fiduciary Duties by continuing to offer company stock when the value dropped by 91%:

Over the same time period the value of Sovereign’s stock declined.  “The price of Sovereign stock fell from $26.42 on February 20, 2007 to $2.33 on September 29, 2008 (a 91.2% drop)”  Opp. to MTD at 5-6.  In addition to this decline in stock value, on April 23, 2008, Moody’s Investors Service lowered Sovereign’s credit rating two levels from an A3 to a Baa2.

Topics: litigation, Employee Stock Ownership Plan (ESOP)

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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