Boeing DC Plan Participants Sue Over Inflated Stock Price

Participants in a Boeing retirement plan have filed an Employee Retirement Plan Security Act (ERISA) lawsuit related to the Boeing 737 MAX airplane issues.

The plaintiffs in the suit are participants in the Boeing Voluntary Investment Plan, and they filed the lawsuit on March 31 in a representative capacity on behalf of that plan, and as a class action on behalf of all other similarly situated participants in and beneficiaries of defined contribution (DC) plans sponsored by the Boeing Company.

According to the complaint, the plans included as an investment option the VIP Stock Fund designed to invest in shares of stock of Boeing. It alleges that for many years, Boeing’s stock price has been artificially inflated.

The plaintiffs say problems with Boeing go back to at least 2010, when it faced the issue of placing more fuel-efficient, but larger engines in its 737 series airplanes. They then explain that planes have sensors in the wings to warn of an impending stall, and commercial planes have systems that will automatically lower the nose in order to prevent a stall, but the systems installed in the 737 MAX designed to offset the imbalance resulting from the placement of the new engines had problems on takeoff. They say the problem was noticed by pilots, and Boeing was aware enough of the problem to have created a warning light system, but instead chose to present this warning feature an optional add-on.

“Defendants knew or should have known that this represented a major engineering and manufacturing issue that was sure to have a significant impact on Boeing’s future operations as it would have been well-known and highly discussed within upper echelons of Boeing management. Boeing’s senior management received numerous reports on the progress and testing of the necessary engineering solutions. The reported problems with flight controls would have been widely discussed among senior Boeing executives, and the decision to make the warning light system an optional add-on, were analyzed, reviewed and discussed among Boeing executives well beyond the engineering divisions, and included finance, sales and marketing. Boeing’s senior management, including the members of the executive council and the individual defendants, knew or should have known about all of the serious safety problems and proposed work-arounds throughout the class period,” the complaint says.

The plaintiffs allege that Boeing knew or should have known that eventually the truth about the safety problems with its 737 MAX aircraft would become publicly known, and would lead to massive disruptions in the demand for the 737 MAX, a large downward correction in the value of Boeing’s stock, and significant reputational harm.

After a second crash of a Boeing 737 MAX, the complaint says, almost every country has grounded the planes and new deliveries have been put on hold. The market reacted, with Boeing’s share price plunging more than $65 per share, from $442.54 on Friday, March 8, 2019 to $375.41 on Tuesday, March 12, 2019.

According to the complaint, the Boeing defendants knew that the company’s stock price was artificially inflated in value, and that many of the plans’ participants allocated significant portions of their retirement savings to Boeing stock and made additional purchases of Boeing stock for their retirement savings accounts in the plans on an ongoing basis. Yet, the plaintiffs say, “Defendants stayed quiet as the plans’ participants, including plaintiffs, continued to purchase and hold Boeing stock at the inflated price in their retirement savings accounts.”

Boeing would not comment on the lawsuit, but PLANSPONSOR was directed to a web page that has information about the issue and statements from the company.