WorldCom employee Steve Vivien’s hope of recouping some of the $400,000 he lost in his company-sponsored retirement plan is looking brighter lately because the Labor Department has said it will defend the rights of employees to sue top executives for plan losses.
The Labor Department indicated this week that its recent court filing on behalf of Enron workers who lost money in their 401(k) savings plans could be the first of multiple efforts to help workers reclaim their lost investments.
In uncompromising and sometimes blistering language, the department asked a federal judge to reject efforts by former Enron executives to be absolved of their legal responsibilities for losses suffered in the company’s 401(k) savings plan.
The case is expected to have a nationwide effect on a dozen similar class-action lawsuits by employees at WorldCom and other troubled companies who lost money and retirement security because they invested their 401(k) plans in company stock.
While many WorldCom employees invested their retirement funds in the company’s stock, they were not required to do so. In fact, the employees had several investment options that did not include company stock.
Vivien, 47, a customer service delivery manager at MCI’s facility in San Ramon, Calif., was among the first to sue WorldCom for the collapse of his retirement plan. He filed his suit in March, before the company’s stock plunged on the news that the Securities and Exchange Commission was investigating a company loan to WorldCom founder Bernie Ebbers and before it sank again on the news that the company hid more nearly $4 billion in expenses.
But Vivien has plenty of companions now, especially since the company filed for bankruptcy in July, then revealed other accounting problems, making the books off by more than $7 billion.
Hundreds, if not thousands, of former and current WorldCom employees who lost retirement funds are now being represented by at least a dozen large law firms and countless smaller ones.
Their lawsuits, which will probably be consolidated in a federal court in New York City or Jackson, are based on past court rulings involving a 1974 law. The Employee Retirement Income Security Act, or ERISA, established that people who manage retirement plans must look out for the financial security of the plan’s participants.
“I basically thought it was a good place for my money,” Vivien said. “I believed in the company’s financial statements.”
Vivien’s suit contends WorldCom, Ebbers and former Chief Financial Officer Scott Sullivan who’s under indictment for conspiracy to commit fraud â€” lied to company employees about the company’s health.
“They also violated their fiduciary responsibility when they knew, or should have known, that the company’s financial results were bogus,” he said.
Vincent Cornelson, a WorldCom employee in Vallejo, Calif. who lost his job in June, watched his 401(k) plan’s value shrink to $1,000 from a high of about $300,000.
“I was naive,” Cornelson said. “I trusted the managers of the fund, but in the meantime, they knew something was wrong.”
WorldCom spokeswoman Julie Moore said she could not comment on pending litigation. But the company points out that there were 17 other investment options besides WorldCom stock in the company’s 401(k) plan and that, unlike Enron employees, WorldCom workers could shift investment in company stock to another fund at any time.
According to a disclosure report obtained by Gannett News Service, WorldCom’s 401(k) plan had 64,062 participants with $642.3 million invested in company stock at the end of 2000. Data for last year is not available yet.
It is still unclear how many WorldCom executives knew about the company’s accounting problems. But Ebbers and other executives sent several e-mails to about 60,000 employees earlier this year assuring them of the company’s financial health.
For example, WorldCom President John Sidgmore assured employees at the end of April of the company’s “solid financial foundation.” The e-mail was circulated less than two weeks before the company’s stock crashed on news of an SEC probe of WorldCom.
WorldCom workers are following the lead of Enron employees whose class action suit against their bankrupt employer is now pending before a federal court in Texas.
For now, the employee lawsuits against WorldCom are on hold because the company has filed for Chapter 11 bankruptcy protection. But lawsuits against WorldCom’s executives, board members and top human resources managers can go forward.
Lynn Sarko, a Seattle lawyer representing about 600 current and former WorldCom workers, expects the bankruptcy court will let the lawsuits proceed.
Sarko said he’s ready to strip the company’s executives of their homes, jets and ranches to seek compensation for his clients.
“We will go person to person and look at what they own,” he said.