A group of employees at Countrywide Financial filed a class-action lawsuit against the company, its CEO, and others deemed to be responsible for overseeing the employees’ retirement plan. The suit, filed in federal court in Santa Ana, California, claims that the alleged illegal actions of the mortgage lender and its executives caused thousands of 401(k) plan participants to lose millions of dollars during the company’s recent stock collapse.
The lawsuit was filed on behalf of all Countrywide employees that participate in the company-matched 401(k) plan, and further charges that while CEO Angelo Mozilo and the benefits committee members had a fiduciary responsibility to warn employees of the company’s precarious financial health, they intentionally concealed information from plan participants. The court documents also point out that the benefits committee members were appointed by company executives.
“Most of these employees weren’t risk takers, rather claims processors and line staff who go to work every morning, putting a little away every month for retirement, or to finance a child’s education,” said Steve Berman, the attorney representing the plaintiffs. “With Countrywide’s demise, they’ve seen their retirement funds decimated.”
The complaint explains that Countrywide offers two components in its employee 401(k) plan. The first is a participant contribution plan, where employees can make voluntary pre-tax contributions out of their base pay. The second aspect is a company match plan, in which Countrywide matches up to a pre-determined percentage. Under the matching component of the plan, many employees received a 50 percent match of up to six percent of their contribution, paid entirely in company stock during calendar years 2005 and 2006.
According to the suit, the employees relied on information supplied by the company, its CEO, and other plan fiduciaries in making the decision to contribute to the plan. Therefore, the company and the fiduciaries misled the employees, concludes the complaint.
The suit also implicitly invokes the Sarbanes-Oxley Act, asserting that Mozilo “repeatedly certified financial statements” he knew were misleading “in an attempt to cover the high-risk loans his company was selling, all the while telling a different story to investors and ignoring analyst recommendations to compile a reserve.” Section 302 of Sarbox requires that public company CEOs and chief financial officers certify that their company’s financial statements are accurate.
According to Hagens Berman Sobol Shapiro, the law firm bringing the suit, between February of 2007 and August 16, 2007, Countrywide’s shares lost nearly three-quarters of their value, including 30 percent alone on August 16, after the lender announced that it was using all of an $11.5 billion credit line. The suit makes several claims of wrongdoing by Countrywide and retirement plan administrators, including: failure to prudently and loyally manage the plan’s assets, failure to provide complete and accurate information to participants and beneficiaries, failure to monitor the compensation and benefit plan committees and provide them with accurate information, breach of duty to avoid conflicts of interest, and co-fiduciary liability.
Under the Employee Retirement Income Security Act (ERISA), a plan participant can bring a civil action on behalf of a retirement plan against companies and individuals that breach any of the duties outlined for a fiduciary, says Hagens Berman. As a result, the employees are seeking compensation for money lost and imposition of a constructive trust on any amount by which the defendants were unjustly enriched. They also are asking the court to require defendants to appoint one or more independent fiduciaries to participate in the management of the Countrywide stock.