A federal judge has dismissed a lawsuit seeking to overturn the Department of Labor's cryptocurrency guidance for 401(k) plan fiduciaries.
ForUsAll Inc., a 401(k) plan administrator that offers cryptocurrency to participants through a self-directed brokerage window, filed the lawsuit in June 2022 in U.S. District Court in Washington, alleging that the Labor Department's guidance published in March 2022 is "arbitrary and capricious" and violated the Administrative Procedure Act.
The guidance for 401(k) plan fiduciaries advised them to "exercise extreme care" before selecting cryptocurrency as an investment option in plan menus. Fiduciaries that include such investment options or allow such investments through self-directed brokerage accounts "should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of" potential risks associated with cryptocurrencies, the guidance said referring to ERISA's requirements.
In a decision Tuesday, Judge Christopher R. Cooper sided with the Labor Department and said ForUsAll didn't have standing in the case and the department's guidance isn't subject to judicial review.
"ForUsAll fails to meet its burden of demonstrating its standing to proceed in this court and, regardless, has not stated a cognizable claim. ForUsAll lacks standing because it is highly speculative that the requested relief would redress the alleged injuries to its business. Its APA (Administrative Procedure Act) claims also falter at the outset because the release is not a final agency action and is therefore unreviewable."
In filings before the court last year, the department said ForUsAll lacked standing and urged the court to dismiss the case.
"The department appreciates the court's thorough analysis of the issues and its ultimate decision agreeing with the department's position," a Labor Department spokesman said in an email.
ForUsAll did not immediately respond to a request for comment.
In its guidance, the Labor Department spelled out some concerns it has with incorporating crypto assets in participants' retirement accounts. Doing so presents "significant risks of fraud, theft, and loss," the guidance said. The risks exist because cryptocurrencies are speculative and volatile investments; pose custodial and record-keeping challenges; present valuation concerns; and contend with an evolving regulatory environment, the department added.