Nelson v. Hodowal, 512 F.3d 347, 2008 WL 90057, (7th Cir. January 2, 2008)

This abstract discusses Nelson v. Hodowal, 512 F.3d 347, 2008 WL 90057, (7th Cir. January 2, 2008) and affirms that ERISA fiduciaries do not have a legal duty to disclose to participants that they are selling their stock:

In Nelson et al. v. Hodowal et al., the plaintiffs' employer matched employee contributions in company stock. Some months after the company merged with another, the stock value dropped sharply. The plaintiffs sued the original company executives for failing to anticipate the impending drop. They also contended executive fiduciaries intentionally misled workers, withdrawing personal investments in company stock. The executives contended they expected to be replaced by the new company. The Seventh Circuit Appeals Court affirmed the lower court's ruling for the defendants. The court ruled plan fiduciaries are not required to tell participants about their own stock sales, even if they disclose the fact to a third party advisor.

ERISA Class Action Defense Cases-Nelson v. Hodowal: Seventh Circuit Affirms Defense Judgment In ERISA Class Action Holding Plan Fiduciaries Not Required To Disclose "Facts That May Lead To Idiosyncratic Reactions discusses the appeal in more detail:

The sole issue on appeal was "whether the defendants had to tell the participants that the defendants were selling most of their own stock in IPALCO-not only stock held through the Thrift Plan, but also stock that the defendants were able to acquire by exercising vested options that they had received in their roles as managers or directors of Indianapolis Power & Light." Nelson, at *2. In essence, plaintiffs argued that defendants implicitly promoted AES as a good investment "while by divesting their own holdings they demonstrated that their true beliefs were otherwise," a form of implied deceit referred to by the securities law as "scalping." Id. The district court had rejected this argument and expressly found that "the defendants actually (and reasonably) believed everything they told the participants, and that they sold IPALCO stock, and cashed out their options, only because AES had announced that it would replace the management team at Indianapolis Power & Light." Id. In other words, "[t]he defendants were on their way out the door and had no more reason to hold IPALCO (or AES) stock than to hold any other utility stock, and substantial reasons to diversify." Id. Plaintiffs did not challenge these findings on appeal, id., at *3…