News Flash: ESOP Fiduciaries May Obey the Law


The U.S. Supreme Court ruled in Fifth Third Bancorp et al. v. Dudenhoeffer, No. 12-751 (U.S. June 25, 2014), that no special presumption of prudence applies to the decision by ESOP fiduciaries to buy and hold stock of the sponsoring employer.  But what the Supreme Court shot down with one hand, they reinstated through common sense.  Although ESOP fiduciaries don’t get the benefit of any special presumption of prudence, they don’t have a duty to diversify holdings (after all, the ESOP exists to hold employer stock) and plaintiffs have a steep climb to allege the fiduciaries breached their duty of prudence.  Alleging that the fiduciaries should violate SEC rules on insider trading is never enough; and, almost always, alleging that the fiduciaries traded in the employer’s stock at the market price is not enough, even if publicly available information could lead an investor to believe the stock was overpriced.  Apparently fiduciaries don’t have to be clairvoyant and predict stock market bubbles before they burst.

Topics:  Compliance, ESOP, Fiduciary Duty, FIfth Third Bancorp v Dudenhoeffer, SCOTUS, SEC, U.S. Bancorp

Published In: Business Torts Updates, Civil Procedure Updates, Finance & Banking Updates, Labor & Employment Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sherman & Howard L.L.C. | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »


Sherman & Howard L.L.C. is a super-regional firm with a national practice. Our approximately 190... View Profile »

Follow Sherman & Howard L.L.C.:

Reporters on Deadline