A federal district court judge in New York dismissed two lawsuits Wednesday against International Business Machines Corp. that alleged the company failed to adequately disclose information and/or take appropriate action to protect shareholders regarding the disposal of a troubled business unit.
In Jander et al. vs. International Business Machines Corp. et al., participants in the $45.9 billion (as of Dec. 31, 2015) IBM 401(k) Plus Plan, Armonk, N.Y. contended IBM officials violated their fiduciary duties under ERISA in the management of a company stock fund within the defined contribution plan. Plaintiffs sought class-action status for the class period running from Jan. 21, 2014, to Oct. 20, 2014.
In the other case, plaintiffs representing a pension fund and other investors in IBM stock argued that company officials had violated Securities and Exchange Commission rules in failing to adequately disclose information about the business unit. This case is International Association of Heat and Frost Insulators and Asbestos Workers Local #6 Pension Fund et al. vs. International Business Machines Corp. et al. The size of the pension fund could not be learned by press time.
Both lawsuits were dismissed by U.S. District Judge William H. Pauley III. However, in the Jander case, he ruled plaintiffs could file an amended complaint and that they must inform him of their intentions within 30 days.
Both lawsuits focus on IBM's effort to sell its microelectronics unit, which, according to court documents, suffered big operating losses in 2012 and 2013. In 2014, IBM tried to sell the unit, but it eventually paid GlobalFoundries $1.5 billion to take it.
On Oct. 20, 2014, IBM announced the transaction, in which it said it would take a $2.4 billion write-down of the microelectronics assets, it also reported quarterly results in which sales dropped 4% and operating profits per share fell 10%, according to court documents. The announcements sent the stock down approximately 17%.
The Jander case was dismissed, the judge wrote, because plaintiffs only offered “a rote recitation of proposed remedies” without providing necessary facts to support their complaints.
The pension fund case was dismissed because plaintiffs failed to prove IBM's intent to keep information hidden. “It is far more plausible the defendants were not deceitful but mistaken,” he wrote.
In the Jander case, the participants alleged that company and 401(k) plan executives “failed to prudently and loyally manage the plan's assets and failed to adequately monitor the plan's fiduciaries,” the judge's ruling said.
Maintaining that IBM's stock price had become “artificially inflated,” plaintiffs said defendants “should have disclosed the truth” about the microelectronics unit “or issued new investment guidelines temporarily freezing further investments by the (stock) fund in IBM stock,” according to court documents.