ERISA Rules Violated

Oklahoma City, OKIn recent years, companies have faced a growing number of lawsuits related to stock fraud. The lawsuits involve large corporations violating the Employee Retirement Income Security Act (ERISA).

As is the case with Scott Wilkins' employer, companies often offer stocks in a company as a reward for hard work. Unfortunately, the companies do not always honor the stocks they have given out. This is considered stock fraud and violates ERISA rules.

Scott Wilkins worked for a large online corporation for eight years, from 1996-2004. During that time, his company gave out stock in the company as a bonus. "It was a reward for hard work," Scott says. "Rather than cash, they gave out stock to thank people for doing a good job."

In January, 2000, his company announced plans to buy a large media corporation. It was supposed to become a powerhouse corporation, combining internet capabilities with the media expertise. What happened instead was a dramatic shift in fortunes. Scott's company reported record-breaking losses. The value the company he worked for dropped dramatically.

Scott and his fellow employees were left with stocks that were almost worthless. "We're talking about stocks that were worth $150-$200 a share," Scott says. "Now they're worth $17 a share. A lot of people were ripped off by this. These stocks were for people who worked hard for the company. Now, the stocks are worthless."

Scott believes that some people knew that the stocks would lose their value. "I think the big shots knew what was coming. They were selling off their stocks before it happened."

"My understanding was that at some point, they would make good on the bad stock," Scott says. "The company would make things right. I still have some of the stocks," Scott says. "I cashed some of them in, but most of the stocks are worthless."

"I was a stockholder in the company I worked for, and I thought something like this might happen. As a stockholder, you have a say in these things. I voted against the buyout because I thought this might happen. But the sale went ahead. Employees from the company we bought gained a lot from this merger. Their stocks were fine. But our employees lost everything they had in stocks."

ERISA was designed to protect people who participate in employee benefit plans. This includes employees with stock options in a company. According to ERISA, employees can file a lawsuit against a company for putting stock options at risk.

Under ERISA, employees have a claim if they can prove their employer violated its fiduciary duty to its employees. "Fiduciary duty" refers to a company's responsibility to the people who invest in it. If an employer puts the company's interest ahead of the investors', it has broken its fiduciary duty. Over the past few years there have been a number of ERISA claims against companies because of stock options. These include lawsuits against Harrah's Entertainment, Kmart Corporation, and Ferro Corporation.