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Kraft Heinz DC participants file suit over company stock decline

A bottle of Heinz Kraft Co. Heinz brand Tomato Ketchup is arranged for a photograph in Dobbs Ferry, New York, U.S., on Wednesday, Feb. 20, 2019. Kraft Heinz Co. is releasing earnings figures on February 21. Photographer: Tiffany Hagler-Geard/Bloomberg

A class-action lawsuit was filed on behalf of current and former Kraft Heinz Food Co. employees against the company's employee benefits administration board for allegedly failing to protect the defined contribution plan from company stock losses.

The suit, filed Tuesday in U.S. District Court in Pittsburgh said the harm was caused by the board "allowing plan participants to purchase and hold an imprudent investment in Kraft Heinz stock," according to suit.

The suit alleges that Kraft Heinz plan participants were surprised after the company in its fourth quarter earnings report said it took an impairment charge of $15.4 billion, resulting in a net loss of $12.6 billion attributable to shareholders.

The company also publicly disclosed for the first time on Feb. 21 that it received a subpoena from the SEC in October 2018 regarding the company's procurement function. The company then conducted its own investigation, resulting in it recording a $25 million increase to costs of products sold, hurting the company's credibility and provoking fears of future accounting adjustments.

As a result of these disclosures, the price of Kraft Heinz common stock declined more than 27% to $34.95 per share when the suit was filed from $48.18 per share. Plan participants were damaged by both loss in value and the purchases they made at inflated prices when the stock was not trading at its true value.

The suit argues that this sudden and large write-down of the company's goodwill was easily avoidable and preventable.

The suit alleges that, as fiduciaries of the plan, the defendants failed to protect the plan and its participants from harm "by allowing plan participants to purchase and hold an imprudent investment in Kraft Heinz stock that was disqualified under ERISA as well as damaging to the plan."

Plaintiffs also allege that they paid excessive prices for Kraft Heinz stock, suffered financial harm to their retirement savings by overpaying for the stock, which defendants either knew or should have known "would fall sharply in value when the company disclosed its impaired goodwill and misrepresentations."

Company spokesman Michael Mullen could not be immediately reached for comment.

The firm had $4.5 billion in DC assets as of Sept. 30, according to data from Pensions & Investments.