The U.S. Supreme Court on Monday declined to hear an appeal by current and former employees of Wells Fargo & Co. who had accused the company and its fiduciaries with ERISA violations relating to the offering of company stock in a 401(k) plan.
The plaintiffs argued that plan fiduciaries should have acted to protect participants who held Wells Fargo stock. They wrote that a sales-practices scandal that led to penalties against the company also caused the stock to fall, according to the stock-drop case of Allen et al. vs. Wells Fargo & Co. et al.
The Supreme Court offered no comment,
A U.S. District Court in Minneapolis dismissed the original complaint in September 2017. The 8th U.S. Circuit Court of Appeals in St. Louis upheld the lower court's decision in in July 2020 to dismiss the complaints.
Both courts said the plaintiffs' arguments fell short of standards set by the U.S. Supreme Court in a 2014 ruling that provided guidance to lower courts on whether to dismiss a stock-drop complaint or allow it to go to trial.
The plan plaintiffs petitioned the U.S. Supreme Court in December 2020, saying the two lower courts' rulings had conflicted with other courts' interpretations of the Supreme Court's 2014 decision in Fifth Third Bancorp vs. Dudenhoeffer et al.
They alleged that 401(k) plan fiduciaries knew as early as 2005 that the company's sales practices led to "artificially inflating the market value" of the company's stock, according to court documents.
They also alleged the company knew that the federal government was investigating its activities "as early as 2013," according to company documents.
Plan fiduciaries should have taken "corrective measures" for two company stock investments in the 401(k) plan, such as freezing the company stock funds, publicly disclosing the sales practices or "purchasing a hedging product" to protect plan participants, they wrote.
However, both the District Court and the appeals court said the plaintiffs' allegations didn't meet the U.S. Supreme Court standard determination of whether public disclosure "would do more harm than good."
The plaintiffs "have failed to plausibly allege that a prudent fiduciary ... could not have concluded that earlier disclosure would do more harm than good," the appeals court wrote.