Legal Question in Investment Law in California

Unauthorized transaction in my 401k account

I can trade in my401k acct.I bought stock of my companywhen it began trading on NASDAQ last week. Im not an insider,& have no trading restrictions.After purchase it went up&my porfolio value rose by approx.$7k in 3days.I checked today&found my trades reversed.I asked my H.R.Dirctor at work what happened.She said sorry, but the co.we work for was planning putting restrictions on purchases in 401k plan until it had further weighed the risk factors for&determined % of total portfolio they should allow,etc,which makes sense,I think. However,they hadn't notified 401k co.until a couple of days after my trade,which was completely legal.401k co.reversed it per my employer instructions.They or employer never notified me or any employees of such restrictions.Shouldn't employer need to 1)notify employees of such restrictions before trading is allowed,& 2)have to notify me before reversing any trade that was legal when I made it?I feel like 2 parties simply went into my acct and did transactionswithout authorization from me.FYI, the co.has no issue w/employees purchasing stock if it's outside of 401k account.What choices do I have here?Was this legal?


Asked on 7/30/03, 1:31 am

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Unauthorized transaction in my 401k account

I will start out by saying that I don't know the answer, which would (for me, at least) require research.

My hunch based upon general experience is that unless the company or 401k administrator has reserved, expressly or by implication, broad rights to supervise plan members' self-trades, the reversals were improper and your losses actionable.

A troubling aspect of this is that the trade reversal has taken a profit away from you and given it to someone else, unjustly enriching that person, which may be the broker or whatever firm or individual was on the other end of the original or reversal transaction.

Read more
Answered on 7/30/03, 6:22 am


Related Questions & Answers

More Investment Law questions and answers in California