A participant in the Seventy Seven
Energy Inc. Retirement & Savings Plan has filed a lawsuit on behalf
of the plan and a class of similarly situated participants in the plan
against the 401(k) Fiduciary Committee, other plan fiduciaries, as well
as Delaware Charter Guarantee & Trust Company d/b/a Principal Trust
The lawsuit alleges that Committee Defendants and
Principal Trust wrongfully and imprudently invested the plan’s assets in
Chesapeake Energy Corporation stock in the plan’s employee stock
ownership plan (ESOP) component. The complaint says, under the Employee
Retirement Income Security Act (ERISA), ESOPs must invest in employer
securities, and Chesapeake stock was not an employer security. The
complaint says defendants should not have allowed the plan to make the
The lawsuit also alleges the plan’s investment in
Chesapeake stock violated ERISA’s prudence requirement “and was reckless
under any common-sense investment strategy.” It noted that Chesapeake
is in the oil and gas industry, a very volatile, high-risk sector of the
economy subject to frequent boom-and-bust cycles. The plaintiff alleges
the Committee Defendants ignored the numerous warning signs that
existed before the class period showing that Chesapeake was an imprudent
investment for retirement assets, and instead allowed the plan to
invest more than 44% of its assets in this one stock. The complaint also
says Committee Defendants did not take any action as the price of
Chesapeake stock declined more than 70%, from $29 per share to $7 per
share during the class period, causing the plan to lose tens of millions
of dollars in assets that should have been used for participants’
According to the complaint, the Committee Defendants
violated their duty under ERISA to diversify the plan’s investments.
Despite recognizing that investing in a single company’s securities was
“not diversified and exposes investors to a higher risk of loss,” the
Committee Defendants allowed the plan to have a high percentage of its
assets concentrated in Chesapeake stock and let the plan buy millions of
dollars of additional shares of Chesapeake during the class period.
addition, the complaint says, the Committee Defendants violated their
duty under ERISA to accurately convey the plan’s terms to participants.
The Committee Defendants told participants the ESOP’s purpose was to
invest in the stock of Seventy Seven Energy, Inc., rather than
truthfully telling them that the ESOP was primarily, and heavily,
invested in Chesapeake stock throughout the class period.
other things, the lawsuit seeks an order compelling the Committee
Defendants and Principal Trust to make good to the plan all losses
resulting from their breaches of their fiduciary duties, including loss
of vested benefits to the plan resulting from imprudent investment of
the plan’s assets; to restore to the plan all profits defendants made
through use of the plan’s assets; and to restore to the plan all profits
which the plan and participants would have made if defendants had
fulfilled their fiduciary obligations.
The complaint in Myers v. The 401(k) Fiduciary Committee for Seventy Seven Energy, Inc. is here.