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Stock Drop Stokes ERISA Breach Investigation

A sharp drop in stock price – and allegations of prior knowledge by senior management of misdealings – seem likely to produce additional litigation.

The most recent example is a press release by the law firm of Zamansky LLC announcing that the firm has commenced an investigation of Johnson & Johnson Inc. on behalf of its current and former employees over the J&J Retirement Savings Plan for “potential violations of the federal Employee Retirement Income Security Act (“ERISA”).” According to the release, the firm is investigating whether these duties were violated by the continued offering of J&J stock as an investment option under the Plan.

Specifically noted was that, on Dec. 14, 2018, Reuters reported that internal J&J documents produced in a lawsuit involving cancer-causing asbestos found in baby powder reflect that J&J senior officers and lawyers knew for many years about the contaminated talc. According to the press release, the documents showed that raw talc and finished powders sometimes tested positive for asbestos, and J&J executives, line managers, scientists, doctors and lawyers fretted over the problem and how to address it while failing to disclose it to regulators or the public – revelations that Zamansky says has caused J&J stock to fall by 10% so far.

According to employee stock and investment fraud attorney Jake Zamansky, current or former J&J employees who purchased and held J&J stock through the Plan may have had their retirement savings damaged. “The Reuters report raises serious questions about whether the Plan’s fiduciaries properly executed their duties under ERISA, which is designed to protect employees’ retirement savings from imprudent and inappropriate investments.”

The firm’s website asks, “Have You Suffered Significant Losses in Your Employee Stock Retirement Plan?,” with a form to provide contact information.

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Since Fifth Third replaced the previous “presumption of prudence” standard, a number of these so-called “stock drop” cases have been relitigated, but most have resulted in judgments for the defendants, including BP and Delta Air Lines, Lehman and GM. In Dennis Smith v. Delta Airlines Inc., et al., the 11th Circuit noted that, “while Fifth Third may have changed the legal analysis of our prior decision, it does not alter the outcome.”

The Zamansky firm has an impressive list of company stock suit cases in which they have represented plaintiffs on their site – including the recent IBM case earlier this month in which the participant-plaintiffs won their case – and, win or lose, the recent sharp drops in the markets seem likely to spur another surge in this type of litigation.