Lawsuit
accuses Sprint of mismanaging retirement plans
By Suzanne King
The Kansas City Star
April 29, 2003
Participants in
a class-action lawsuit against Sprint Corp. want compensation for
retirement plans they allege plunged in value because they were too heavily
invested in company stock.
In a
complaint filed last week in U.S. District Court in Kansas, the
plaintiffs, Robert K. Fries and Fran Lindholm, both of Arizona, and Anton P.
Spanier of Nevada, said Sprint and the committees and individuals who
oversaw the company's retirement plans breached their fiduciary duties and
"are personally liable" to make good on the resulting losses.
The
lawsuit alleges that the company and individual defendants were negligent
for permitting retirement plans to include Sprint's FON and PCS tracking
stocks as investment options and for investing the retirement plans' assets
in the stocks after they were no longer "prudent" investments.
The
complaint said the plans were supposed to provide for employees' retirement
security. But Sprint's FON and PCS stocks had become "speculative,
high-risk investments," so it was imprudent for the plans to invest
more than $3.5 billion and more than 60 percent of their assets in those
stocks, the lawsuit alleges.
The
lawsuit also alleges that Sprint negligently misrepresented the risk and
return characteristics of the stocks as retirement plan investments and
misrepresented the prospects of Sprint's merger with MCI/WorldCom Inc.
The
plans lost more than $2.3 billion, or 65 percent of what was invested in
Sprint stocks, according to the lawsuit.
A
Sprint spokeswoman said the company had not yet seen the lawsuit Monday
afternoon, but she defended the company's handling of its retirement plans.
"Sprint
is confident that its retirement plans have been administered
appropriately," said Melinda Tiemeyer, the spokeswoman.
Attorneys
for the plaintiffs could not be reached Monday.
In
addition to the company, the lawsuit names as defendants Sprint
Investment Trusts Committee; Sprint Pension & Savings Trusts Committee;
Sprint Savings Plan Committee; Sprint Savings and Retirement Plan Committee;
Gene M. Betts, senior vice president and treasurer; I. Benjamin Watson,
former senior vice president for human resources; Randall T. Parker,
director for corporate benefits; William T. Esrey, chairman and former chief
executive; Ronald T. LeMay, former president and chief operating officer;
and 30 individual members of the various committees.
For
several reasons, Sprint's once conservative investment risk profile turned
high-risk in recent years. As the company's long-distance business soured,
Sprint shifted its business "to unproven new markets and expensive new
technologies," the lawsuit said.
For example, the lawsuit points to Sprint's 1998 investment in an
integrated voice and data service called Sprint ION. The project, which cost
at least $2 billion, was later abandoned.
Losses were
written off.
When
Sprint announced that it would be bought by WorldCom for $129 billion, the
lawsuit alleges, Sprint executives pumped up the price of its two stocks by
expressing confidence that the merger would go through. But in reality, it
alleges, the executives should have known regulators gave it little chance
of approval.
The
company built up its wireless customer base by offering service to customers
with poor credit, a high-risk strategy, the lawsuit alleges.
Finally,
the company's then top two executives, Esrey and LeMay, took risky tax
advice from Ernst & Young, Sprint's auditor, which the defendants
should have known would cause "significant conflicts of interest,"
the lawsuit said.
Based
on those and other examples the lawsuit points to, people overseeing the
retirement plans should have known that the tracking stocks "were not
prudent investment options," the lawsuit said.
The
plans should have ended the tracking stocks as investment options, the
lawsuit said, halted the purchase of shares of the stocks and sold all their
shares.
The
lawsuit will be open to class members who were participants in retirement
plans that held shares of the FON Stock Fund or the PCS Stock Fund between
June 2, 1998, and Feb. 13, 2003.
FON
shares closed Monday at $11.26, up 26 cents. PCS was unchanged at $3.80.
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2002 Global Action on Aging
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