Chris Wingard, an Associate in Kleinbard’s Business & Finance Practice, authored a post on updates in Gustavo Moran v. ESOP Committee of the Aluminum Precision Products, Inc. Employee Stock Ownership Plan, for the National Center for Employee Ownership (NCEO)’s Employee Ownership Legal Digest. The NCEO’s Legal Digest provides summaries of key cases, rulings, and legal developments impacting employee ownership. This post explains how a federal district court in the Central District of California has allowed several ERISA claims to move forward in a class action suit brought by ESOP participant Gustavo Moran against the ESOP Committee of the Aluminum Precision Products, Inc. Employee Stock Ownership Plan. The suit challenges the Plan fiduciaries’ decision to hold ESOP assets in low-yield cash-equivalent accounts. Moran alleges that the ESOP fiduciaries violated their duties of prudence by maintaining nearly a quarter of plan assets in money-market funds and short-term U.S. Treasury investments over multiple years, which led to reduced returns compared to what a growth-oriented ESOP cash investment strategy would have generated.
In January, the court denied the ESOP Committee’s motion for judgment on the pleadings, holding that the ESOP diversification exemption did not bar Moran’s prudent-investor claim because the allegations concerned an allegedly imprudent concentration in cash through the ESOP’s other investments account. The case is significant because the court considered the plain language of the statute to exempt only the employer-securities portion of the ESOP from the diversification requirement and held that the complaint plausibly alleged a prohibited transaction because the fiduciaries effectively caused the ESOP to engage in affirmative transactions to maintain an excessive liquidity buffer for the benefit of the Company.
To read the full summary, click here.
