According to James Larue, he made a request to his 401k to sell in 2000 and his plan didn’t. Now he’s suing his employer for over $150,000 of losses in the tech bubble crash. While his suit in principle makes sense. James has a legitimate complaint if it’s true that he issued an order but the order was ignored. However when you start sniffing below the surface, the story begins to smell a little fishy.

James Larue worked at a management consultant firm and in 2000 and 2001 he says made requests to change his investment allocation that he says were not honored. However, he wasn’t aware of this until 10 months after the fact, and after a precipitous fall. Why wasn’t he aware? Was is he in coma? Was he on an undercover assignment? Nope, he just didn’t bother checking.

The administrators of his plan are potentially guilty one of two things. 1) they criminally defrauded Larue in some scheme to benefit themselves 2) they were sloppy and failed to execute the order. In the former case, they would need a reason to do this. There seems to be no apparent motive here for that. Both the employer and the plan administrator (companies like Fidelity and Vanguard) have no reason to prevent a transaction. They do not materially profit from not executing a request. It’s certainly possible that the plan administrator did not implement his request due to some type of clerical or technical error. However in that case, I’m unsure that LaRue would be due the full $150,000 for such an error. It’s not like he checked his account to make sure the transaction was processed. While I’m not a proponent of constantly checking your portfolio, I do think it’s important to check the portfolio and setup when you make changes.

I personally would not be surprised if LaRue either screwed up or there was some type of miscommunication. People are often confused between reallocating existing funds and changing where future investments are made. Maybe LaRue changed his future investments but did not change his current asset allocation? I find it hard to believe that someone who would bring this type of case all the way to Supreme Court is also the type of person who would wait 10 months before checking his account.  The Supreme Court is not hearing the case to determine liability as much if employees have the right to sue 401k operators under the laws that govern pensions. I can agree with Larue on that. I see no reason why a employee shouldn’t be able to sue a 401k operator if there is a real case of fraud. Larue’s case, however, doesn’t pass my sniff test.