The January 14, 2011 Employee Ownership Update is online and discusses the following:
- Eighth Circuit Adopts "Net Seller" Rule in Stock-Drop Case
- Facebook Trades Catalyze SEC Review of Secondary Markets
- ESOP Acquisitions
- Another Large Staffing Company Becomes an ESOP Company
- Principal Financial Best Practices Guide for Employee Financial Security Now Available
- 2011 Conference Will Be Special
The Update discusses Brown v. Medtronic Inc., No. 09-2524 (8th Cir., Dec. 13, 2010) and how the 8th U.S. Circuit Court of Appeals upheld a 2009 ruling that found that an employee who sold stock at a profit lacked the standing to sue, even if the alleged fiduciary violations were true:
In Brown v. Medtronic Inc., No. 09-2524 (8th Cir., Dec. 13, 2010), a circuit court ruled that an employee who sold stock at a profit lacked standing to sue even if alleged fiduciary violations in the offering of company stock in a 401(k) plan were true. The standard differs from an alternative approach that looks at what might have happened absent the breach, something the court said was too hypothetical. The net seller approach has not been universally adopted but has shown up in a number of cases. There can be important nuances to such cases. If, as here, the employee actually benefitted from the alleged fraud because Medtronic stock was artificially higher, the plaintiff's case seems weaker than, for instance, where profit sharing assets were moved into an ESOP, and the ESOP shares subsequently increased in value, but not as much as diversified investments in general did. In that case, the employee is still a net seller, but the alleged fiduciary violation made him or her worse off, not better.
Notably, however, the court declined to adopt the presumption of prudence assumption, saying that the strength of this presumption is "unclear" and that it was not as protective of fiduciaries as Medtronic argued.
8th Circuit tosses ERISA appeal over employees' stock losses discusses the plaintiff's claims and the case in more detail:
The 8th U.S. Circuit Court of Appeals has upheld a 2009 ruling against employees who alleged they lost money in medical-device maker Medtronic Inc.'s stock option plan because of corporate mismanagement.
Lead plaintiff Mark Brown sued Minnesota-based Medtronic and its directors in 2008, seeking class status on behalf of current and former employees who suffered significant financial losses when the value of the company's common stock fell 11 percent following the October 2007 recall of its Sprint Fidelis implantable defibrillator leads.
Brown alleged enrollees in the employee stock plan were financially victimized by corporate mismanagement and imprudent investment decisions by Medtronic executives.
He also said employees who invested in the plan suffered financial losses because the company's stock value was inflated through misrepresentations and omissions by its corporate leadership about the success of Sprint Fidelis leads.
The Medtronic executives continued to sell the device even though they allegedly knew by February 2007 of an excessive fracture rate and put off a recall for another eight months.
Brown sought recovery under the Employee Retirement Income Security Act for all current and former Medtronic employees who held common stock from February 2007 to December 2008.