The U.S. Supreme Court has declined a petition from plaintiffs to review the rejection of an appeal of an ESOP claim brought against KeyCorp and its fiduciaries.
The plaintiffs, participants in KeyCorp's employer stock option plan, allege that the Cleveland-based bank breached its fiduciary obligation to provide prudent investments by continuing to offer bank stock when fiduciaries knew it was overvalued.
KeyCorp had extensive sub-prime mortgage exposure. The plaintiffs claimed the bank knew its balance sheet was exposed to default risks in light of the downturn in real estate that precipitated the financial crisis.
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Yet the bank continued to tout high-risk loans, and misled plan participants as to the extent of the risk they had taken on, according to the plaintiffs. The company stock ultimately fell to $8.48 from $38.03.
A federal court, however, granted KeyCorp's motion to dismiss on a "lack of subject matter jurisdiction." That decision was upheld in the 6th Circuit Court of Appeals.
In its dismissal, the federal court found that Anne Taylor, one of the participant plaintiffs in the case, did not sustain an "actual injury." Instead, the court found that Taylor benefited from the claims of fiduciary abuse, because she sold the majority of her KeyCorp holdings at an inflated price.
In order for the circuit court to review claims that KeyCorp stock became unduly risky and artificially inflated, Taylor had to establish that "she was actually injured by defendants' alleged conduct," wrote Circuit Judge Richard Griffin in 2012.
"This she has failed to do," he said.
The Supreme Court does not provide reasons when it declines to review a case.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
