Stock Option Lawsuits: Employees Have Rights

Boston, MAEmployers who offer [stock options] and other benefits to their employees are bound by law to act in the best interests of their employees. Unfortunately, some employers that offer stock options breach their duty to their employees, resulting in hard-earned money being lost.

Employers offering stock options are governed by the Employee Retirement Income Security Act of 1974, which sets out rules and regulations for stock options and other retirement benefits. However, employers frequently violate these rules, either intentionally or unintentionally. Either way, the employees lose out on money they were counting on. Now, an increasing number of employees are fighting back against companies that act unethically with their money and the courts are often siding with the employees.

One ERISA lawsuit was filed against ALCOA Inc. by almost 5,000 retired employees because the company made changes to its retirement plan that retroactively effected retirees. The judge ruled that the case could go ahead as a class action lawsuit, opening the suit up to as many as 13,000 individuals. The lawsuit alleges that the changes violate the retiree's rights under ERISA and breach the company's contract with its former employees.

Meanwhile, an investigation has begun into State Street Global Advisors and State Street Bank & Trust Company. The investigation focuses on retirement plans that were marketed as investments that would provide stable returns. However, according to a lawsuit filed against State Street, the company changed its investment strategy without notifying investors and put money in risky investments. That change resulted in huge losses to investors.

Earlier this month Vitesse Semiconductor Corp., a company that makes chips for telecommunications networks, announced it will pay $8.75 million to settle lawsuits regarding the backdating of employee stock options. According to the lawsuit, managers of the company backdated stock option grants and then altered paperwork to cover their tracks.

Backdating of stock options is not always an illegal act. It occurs when employers select stock option dates in the past when the company's stock price was lower than the price it was when the option was granted. Backdating is done so that the investor's potential profit from the stock options increases. However, companies that backdate stock options must show the action in their financial records, which is where many companies violate the law.

Mercury Interactive, which was accused of stock options tampering and backdating, will pay $117.5 million to settle lawsuits filed by investors. The company's former chief executive and other former executives lost their jobs and face civil fraud charges alleging they improperly recorded backdated stock options.

When employees are given stock options in companies, they are investing their money in good faith. Unfortunately, not all employers act in good faith when they are dealing with their employees. Some purposely break the laws in order to make a profit. Others simply do not understand the laws properly. In both situations, the employee is the one to pay, by losing money he or she worked hard for.