Home Depot, Investment Advisors, Recordkeeper Face Massive 401(K) Fraud Class Action

Posted May 13th, 2018.

As It Appeared On
Seeking Alpha

John Lohr
Pension fund analyst, Securities Lawyer, Fiduciary expert, Everything Fiduciary

  • Summary
    Home Depot, Financial Engines, Alight Financial Services face multiple charges around breach of fiduciary responsibility.
  • The class currently represents over 200,000 participants and former participants, but is likely to grow.
  • $140 million is the starting ask, but, that too is likely to climb.

HomeDepot, their Futurebuilder 401K plan, the investment committee, Financial Engines Advisors, Alight Financial Advisors, and a lineup of individuals from all those listed have been sued in a massive class action over abuse in their 401(k) plan. More of that in a minute. The class may include more than 200,000 employees, former employees and other K participants. The initial ask is $140 Million. HD, et al should write a check now because, if the class is certified, it will wind up to be a lot more if the plaintiffs win.

Allegations? Aplenty (with my editorial comments in italic parens):

The offered funds performed poorly. (Hard to prove given statistics can be manipulated to make the point for each side).

Unreasonable fees. (Usually a winner, these days. Unless hidden, it should be obvious on its face. If fees were hidden, it’s worse.)

Kickbacks between the investment advisor and the recordkeeper. (Easy to prove and never a good thing.)

If it goes on, the legal fees on both sides will be astronomical. Multiple defendants mean multiple lawyers, multiple finger pointings, lots of “who did what?”, cross motions, replies. Thousands of pages of documents and lots of work for the lawyers for years.

Of interest to investment advisors are the accusations leveled at Financial Engines, hired by HD to provide investment advice and recommendations to participants. The plaintiffs charge that the participants didn’t get any personalized advice, but got canned model portfolios not based on individual participants’ investment objectives.

On top of that, Financial Engines was said to charge fees that were more than double that of competitors, and kicked back part of the fee to the plan recordkeeper, which was apparently not disclosed to participants. Apparently HD knew, though.

When HD fired Financial Engines in 2017, they hired Alight Financial Advisors. Of course, Alight just turned around and hired Financial Engines as a sub-advisor. Let’s see: layered fees for the basic same shoddy services? That’s hardly a reasonable solution.

Northern District of Georgia US District Court will be kept busy. I feel sorry for the court clerks. In the meantime, the judge and clerks have a full time job.

While the principal allegations are based on the breach of fiduciary responsibility, the multiple charges are bound to wind up all over the place like a ping pong ball in a room full of mousetraps.

The two law firms handling the plaintiffs’ case chimed in:

Charles Field, a partner at Sanford Heisler Sharp and counsel for plaintiff and the proposed class, summed fiduciary up: “As a fiduciary to the plan, Home Depot is obligated to act for the exclusive benefit of the plan’s participants and beneficiaries, to assure that plan expenses are reasonable, and to ensure the plan’s investments are prudent. Home Depot neglected these sacrosanct duties.”

Norman Blumenthal, the founding partner at Blumenthal Nordrehaug Bhowmik De Blouw LLP and counsel for plaintiff and the proposed class, added: “Congress enacted the Employee Retirement Income Security Act to provide basic protections for employees with respect to employee benefit plans offered by their employers. Home Depot engaged in a scheme to undermine these basic protections.”

Keep your eye on this one. If it fades into the woodwork, HD and friends settle.

Home Depot and service providers, get those checkbooks out.

Stay tuned!

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