MANHATTAN (CN) - Morgan Stanley is not liable for the profit losses it caused to employee retirement accounts because it contributed stock rather than cash, the 2nd Circuit ruled.
Though the total combined value of company stock in the plans was approximately $2.2 billion at the end of 2007, that figure plummeted to roughly $675 million a year later, according to the May 29 decision.
Employees had filed five complaints against the bank between Dec. 14, 2007, and Feb. 16, 2008, as the values of their funds dipped with the economic downturn.
Those cases were consolidated into two federal class action lawsuits, which U.S. District Judge Deborah Batts threw out based on legal precedent that she said entitled Morgan Stanley to the "presumption of prudence."
Though the 2nd Circuit upheld those dismissals, it cited a different rationale.
The bank did not act as a "fiduciary" under the Employee Retirement Income Security Act of 1974, under which they were sued, the three-judge panel found unanimously.
"Fiduciary status turns on ERISA's plain language and does not exist simply because an employer's business decision proves detrimental to a covered plan or its beneficiaries," the unsigned, 15-page opinion states.
The judges added that "the challenged conduct, even to the extent detrimental to the plans, was not undertaken in performance of a fiduciary function."