If the SEC seems to be slow on its enforcement actions, at least in comparison to other regulators and private enforcement, then it may be that vigilante shareholder action, such as Roaring Kitty, may increase. Plan sponsors may want to stay on top of these developments to be prepared for questions from their plan participants and consider any changes to their compliance duties.
Déjà vu entered the group chat in the first few weeks of May 2024 when news of Roaring Kitty, the force behind meme stock GameStop, seemed to signal a return to previous activity. Back in 2021, Roaring Kitty and others sent the price of GameStop into atmospheric levels in an effort, some said, to shake up short sellers. Yet, it isn’t only Roaring Kitty and friends that have been focused on short selling lately. SEC efforts, both in regulatory guidance and in enforcement actions, seem to be drawing ire from many sources. In contrast, the DOL appears to be taking aim at enforcing its rules against profit sharing plans. And, litigation along the lines of the Hughes case continues in federal courts. If the SEC seems to be slowing on its enforcement actions, at least in comparison to other regulators and private enforcement, then it may be that vigilante shareholder action, such as Roaring Kitty, may increase. Plan sponsors may want to stay on top of these developments to be prepared for questions from their plan participants and consider any changes to their compliance duties.
Recently, a new report showed that more than $1 billion had been returned to investors under the Securities and Exchange Commission’s whistleblower program with a significant amount of those funds going to activist short sellers.[1] “Platt has argued that it has become a “covert outsourcing program” for SEC enforcement that accounts for roughly 12 percent of the agency’s total enforcement budget. That money, he argued, should instead be going to beef up the SEC’s own enforcement.”
The SEC also had a loss in Congress this Spring concerning its guidance on how cryptocurrency should be booked. In a rare moment of bipartisan unity, the House of Representatives voted to overturn the SEC’s staff bulletin that would have advised those holding digital assets, such as cryptocurrency or NFTs to book digital assets as a liability on their balance sheets.[2]
Yet, other agencies aren’t facing the same fate as the SEC. In fact, the Department of Labor seems to be hitting its stride in terms of enforcement actions. It filed actions against two profit sharing plans for violations of ERISA. First, it sued Rochester Overnight Plating’s 401(k) profit sharing plan alleging failures in segregating employee deposits into retirement funds, among other violations. Instead, that company allowed the employee contributions to remain comingled with general accounts.[3] This suit follows on the heels of others filed in 2024, one filed against Trees R Us for alleged use of retirement funds for personal use by executives. An earlier case against Jones Dykstra and Associates, Inc. also involved failure to segregate employee contributions.[4] The DOL also sued a payroll processor, iProcess Online Inc., at the same time for similar failures. Both companies were defunct, and the amounts sought in both cases were less than $150,000. To date, the DOL has sued four profit sharing plans, which may indicate an increase from previous enforcement activity. In 2023, the department sued only six such plans.
Also of note, a settlement was in a potential class action case against Salesforce brought by its 401(k) plan participants over alleged fiduciary duty violations. That matter seemed to be related to the Hughes case that we have written about previously. In the Salesforce matter, the plaintiff class “claimed the software company had breached its fiduciary duties by not replacing higher-cost investments with the lowest-fee share classes available of mutual funds offered in the plan and the plan failed to consider” additional options.[5] As we’ve said in discussing other cases that have been brought since theHughes decision, the fund classes involved matter less than alleged failures in the process of selecting and analyzing fee options for fund choices.[6]
[2] https://www.axios.com/2024/05/08/house-vote-sab121-sec-guidance-crypto-custody
[3] https://www.plansponsor.com/dol-sues-third-profit-sharing-plan-in-2024
[4] https://www.plansponsor.com/dol-sues-2-maryland-plan-sponsors
[5] https://www.plansponsor.com/salesforce-agrees-to-settle-erisa-lawsuits
[6] https://www.bcgbenefits.com/blog/newest-suits
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
get xpress proposal
