Countrywide ERISA suit

I just received the following in an e-mail:

Bruce Murphy PC is currently investigating Countrywide Financial Corp. (“Countrywide” or the “Company”) for potential violations of the Employee Retirement Income Security Act of 1974 (“ERISA”). The investigation focuses on investments in Countrywide stock by the Countrywide Financial Corp. 401(k) Savings and Investment Plan (the “Plan”).

Countrywide said it expects the current turmoil to reduce its mortgage lending next year by 25% from this year's level. In a letter to employees, the Calabasas, Calif., company's Chief Executive Officer Angelo Mozilo called the current down cycle in mortgages "the most severe in the contemporary history of our industry."

Bruce Murphy PC’s investigation involves concerns that Countrywide and other administrators of the Plan may have breached their ERISA-mandated fiduciary duties of loyalty and prudence to participants and beneficiaries of the Plan. A breach may have occurred if the fiduciaries failed to manage the assets of the Plan prudently and loyally by investing the assets in Company stock when it was no longer a prudent investment for participants’ retirement savings.

If you are a member of the Countrywide Financial Corp. 401(k) Savings and Investment Plan and purchased or held Countrywide stock in the Plan, you may contact bgm@brucemurphy.biz

At first, I didn't think this was a good case. As employees have control over the investments in their 401(k)s, companies don't have a lot of liability for them.

But then look at this, from the Department of Labor:

There are other ways to limit potential liability. Some plans, such as most 401(k) or profit-sharing plans, can be set up to give participants control over the investments in their accounts. For participants to have control, they must be given the opportunity to choose from a broad range of investment alternatives. Under Labor Department regulations, there must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund, and diversify among the investment alternatives offered. In addition, participants must be given sufficient information to make informed decisions about the options offered under the plan. Participants also must be allowed to give investment instructions at least once a quarter, and perhaps more often if the investment option is extremely volatile.

So if management knew CFC was a turd (if, say, the CEO was dumping hundreds of millions of dollars in stock), but didn't tell employees that CFC was a turd, that would be a violation of ERISA.

So, Countrywide employees, give Bruce a call. It can't hurt.