The complaint for this class action alleges that General Electric put too little aside in reserves for its insurance companies and thereby falsely inflated its earnings and stock price. But this is not a brought by stockholders as a securities case; it’s brought by participants in the GE Retirement Savings Plan under the Employee Retirement Income Security Act (ERISA).
The class for this action is all participants or beneficiaries of the GE Retirement Savings Plan who, (1) from January 1, 2010 or later, asked that any contributions or matching funds in their plan account be invested in the GE Stock Fund, and (2) continued to maintain that investment until January 19, 2018 or later.
One of the options offered in the company’s retirement plan was a GE Stock Fund, which had virtually all of its assets in GE common stock. Plan participants could invest their 401(k) contributions or matching contributions in this fund as well as others.
Participants suspected the problem with GE stock price inflation more than ten years ago. In fact, in 2006, they brought suit against GE with exactly the same claim: that GE had breached its fiduciary duties to the plan by offering the GE Stock Fund even though they knew the stock price was falsely inflated by under-reserving. At that time, the estimate was $5 to $10 billion in under-reserves.
GE denied the allegations and settled the case in 2009, before discovery could take place. It expressly denied the allegations, the complaint believes, in notices sent to plan participants.
However, on January 16, 2018, GE announced that it had in fact under-reserved funds for two of its insurance subsidiaries by approximately $15 billion. This meant that it had to contribute that amount to the two companies, which in turn lowered its earnings. The complaint says, “Shortly thereafter, GE also announced that the SEC was investigating the $15 billion shortfall.” The SEC is the Securities and Exchange Commission, which regulates securities such as GE common stock.
The false information led to a rise in the GE common stock’s price. In 2009, when GE settled the earlier lawsuit, the stock’s price was around $14 per share. It then rose steadily, to a high of nearly $33 per share in July 2016. However, today the company’s stock price is below $8 per share.
The complaint claims that GE was either aware of the shortfall at the time of the earlier case or that it should have investigated the claims of a shortfall. The complaint claims that GE and its former CEO Jeffrey Immelt allowed the plan participants to invest their funds in inflated stock and then caused them to suffer losses when the truth was revealed. Their behavior, the complaint says, breached their fiduciary duties of both prudence and loyalty.