Indianapolis Power & Light Company maintains not only a defined-benefit pension plan but also a defined-contribution supplemental plan called the “Thrift Plan.” The defined-benefit plan holds a diversi *348 fied portfolio of investments; the defined-eontribution plan initially limited employees to holding stock of ipaloo Enterprises, Inc., the employer’s parent corporation, or bonds issued by the United States. Employees may contribute to the Thrift Plan an amount that depends on § 401(k) of the Internal Revenue Code. The employer matches these contributions up to 4% of an employee’s annual salary.
In 1995 the Thrift Plan was amended to allow participants to diversify their investments. By 2000 the Plan was offering nine options, from very conservative (a money-market fund) to risky (ipalco stock and nothing else), with several bond funds and mutual funds in between. The Plan hired Merrill Lynch, Pierce, Fenner & Smith, Inc., to advise the participants about appropriate investments; Merrill Lynch stressed the benefits of diversification. The Plan allows participants to change investments among the nine options daily, with no need for advance notice. But as of 2000 all of the employer’s matching contributions were allocated to ipalCO stock; the Plan’s terms made this mandatory.
Ipalco merged with AES Corporation on March 27, 2001. The merger had been approved by ipaloo’s board of directors in July 2000 and by the shareholders that October. AES offered a premium of 16% relative to the price at which ipalco’s stock had traded the day before the announcement. Between July 2000 and March 2001 Merrill Lynch distributed literature to the Thrift Plan’s participants and held meetings at which all options, including moving investments from ipalco’s stock to one of the mutual funds, were discussed. By the time of these meetings investors no longer needed to hold ipalco’s stock to obtain the merger premium; the price of ipalco’s stock had climbed in the market to reflect the value of the AES stock that it would soon become (less a small discount to reflect the chance that the merger would be called off). Nonetheless, when the merger closed about 64% of investments in the Thrift Plan were held as ipaloo stock ($145.4 million of the Plan’s total assets of $228.1 million).
AES was, and is, a much larger firm than ipalco. It operates energy businesses around the globe, and the value of its stock in the market reflects not only the acumen of its managers but also the energy policies of many foreign nations, plus the exchange rate between the dollar and the currencies in which AES does business. How Indianapolis Power & Light performs has but modest influence on the market price of AES stock. When the merger closed, AES was trading for $49.60 a share. Three months later it was at $42.28. On September 25, 2001, AES was trading for $24.25, and the bottom dropped out the next day: AES fell to $12.25. It reached a low of $4.11 on February 21, 2002. The record does not reveal the reasons for the collapse in price. † We do know that, although the firm suf *349 fered red ink in 2001 and 2002, it continues to be a substantial enterprise. Its revenues in 2000 were $6.7 billion, with a profit of roughly $1.40 a share. In 2006 its revenues were $12.3 billion and its earnings per share 43$. The stock closed on December 18, 2007, at $21.58. That is still a substantial loss compared with the price in March 2001 — not only in absolute terms, but also relative to the stock market, which is higher today than in March 2001.
Two of the Thrift Plan’s participants filed this class-action suit under the Employee Retirement and Income Security Act (emsa) against the Plan’s fiduciaries. The principal contention was that the fiduciaries (all of whom were executives at Indianapolis Power & Light) should have seen the decline coming, or at least should have understood that AES is too volatile to be a suitable investment for pension holdings, and therefore had to
compel
all of the participants to exchange their ipalco stock for the Plan’s other investment options before the merger closed. See 29 U.S.C. § 1104 (obligations of fiduciaries), § 1132(a)(2) (authorizing suit to recoup losses to a plan). Both the Supreme Court, in
LaRue v. DeWolff, Boberg & Associates,
No. 06-856,
The district court held a bench trial and found essentially every disputed fact in defendants’ favor.
Plaintiffs have abandoned on appeal all but one of the arguments they presented to the district court. The last issue remaining in dispute between the parties is whether the defendants had to tell the participants that the defendants were selling most of their own stock in ipalco — not only stock held through the Thrift Plan, but also stock that the defendants were able to acquire by exercising vested options that they had received in their roles as managers or directors of Indianapolis Power & Light. Plaintiffs accuse the defendants of promoting AES as
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a good prospective employer (and implicitly as a good investment), while by divesting their own holdings they demonstrated that their true beliefs were otherwise. This is the sort of implied deceit that is called scalping in securities law. Compare
SEC v. Capital Gains Research Bureau, Inc.,
None of these findings is challenged as clearly erroneous. Instead plaintiffs maintain that, even though the defendants’ sales did not imply any belief that AES was overpriced in the market or an unsuitable investment for the Thrift Plan’s ongoing participants, defendants should have told each of the participants point blank that the fiduciaries were getting out while the going was good. The district court observed that the defendants
had
disclosed their sales by filing the appropriate forms under § 16(a) of the Securities Exchange Act of 1934. See 15 U.S.C. § 78p(a); 17 C.F.R. § 240.16a-2. This information not only was known to the stock market in the fall of 2000 — long before the closing — but also did not affect the price of AES stock. Securities law assumes that markets for widely-traded stock such as AES are efficient and impound all publicly available information. See, e.g.,
Basic Inc. v. Levinson,
Thus the case boils down to an argument that an erisa fiduciary has a duty to disclose, directly to a pension plan’s participants, even non-material information that may affect the participants for reasons unrelated to the value of the investment. Plaintiffs insist that many of the participants would have sold ipaloo as soon as they learned of the managers’ decisions, not because the information actually affected the stock’s value (or suitability) but just because they wanted to copy the managers’ investment strategies as an information-conservation device.
Plaintiffs observe that erisa requires fiduciaries to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims” (29 U.S.C. § 1104(a)(1)(B)) — and the defendants’ sales of their own ipaloo stock tell us (plaintiffs insist) that defendants recognized that prudent men would have sold the ipaloo stock before the merger. This does not sidestep the district judge’s conclusion that the defendants sold for reasons that did not apply to persons who would remain employees of Indianapolis Power & Light after the merger. The market’s non-reaction to news of defendants’ sales shows that their decisions did not reflect anything about the value of ipaloo or AES stock.
*351
There remains a possibility that participants in the Thrift Plan would have misunderstood the reasons for, and the significance of, defendants’ sales, and changed their own investment allocations for that reason, but no regulation or decision requires ERISA fiduciaries to disclose facts that may lead to idiosyncratic reactions.
Any
tidbit might cause such a reaction; the materiality requirement entitles fiduciaries to limit their disclosures and advice to those facts that concern real economic values. In the language of securities law, a non-disclosure that may affect a person’s choice about which securities to hold, but does not relate to the value of those securities, yields transaction causation but not loss causation. And without loss causation there is no liability. See
Dura Pharmaceuticals, Inc. v. Broudo,
A better line of argument would rely on 29 U.S.C. § 1104(a)(1)(C), which requires fiduciaries to diversify “the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so”. Defendants diversified their own portfolios and might have done more to promote diversification by other participants. Diversification is valuable even when each security is accurately priced by the stock market. See Bevis Longstreth, Modem Investment Management and the Prudent Man Rule (1986). Although the defined-benefit plan was already diversified (and worth more to most employees than their supplemental investments in the Thrift Plan), additional benefits were available from diversifying investments in the Thrift Plan. But here is where it matters that defendants did disclose their own sales — not, to be sure, directly to each participant, but in public filings with the SEC and the stock markets. Rank-and-file workers at Indianapolis Power & Light don’t read such filings, but investment analysts do — and defendants caused the Thrift Plan to hire Merrill Lynch to provide advice to each participant personally. Nothing was hidden from Merrill Lynch.
A trustee’s duty to furnish information to beneficiaries, on which see Restatement (Third) of Trusts § 82 (T.D. 4, 2005), may be discharged directly or through an intermediary such as Merrill Lynch. Often delegating the function to a specialist is best for a novice investor. Employees who participated in the Thrift Plan may have had little idea what to make of raw information such as the steps defendants took to cash out their stock options. But counselors from Merrill Lynch could put the defendants’ sales in context with other information. As we have already mentioned, Merrill Lynch was engaged in part to promote intelligent diversification once extra investment options were offered in 1995. Plaintiffs have not referred us to any regulation or judicial decision obliging fiduciaries to disclose directly to participants rather than through professional investment counselors. Sometimes trust law requires delegation to a professional such as Merrill Lynch. See Restatement (Third) of Trusts § 80(2) & comment d(l) (T.D. 4, 2005). Erisa does not hold a fiduciary responsible for the decline in an investment’s value, when an informed and independent investment adviser has been furnished without charge to all beneficiaries, who exercise full control over which investments their accounts will hold.
Affirmed
Notes
Though an article in the New York Times gives the general idea: "There are problems in Venezuela, Brazil and Argentina, which used to be its biggest profit centers. A subsidiary in Britain is in default on loans, and AES faces several lawsuits in California, where it is one of the companies blamed for soaring electricity prices in 2000.” Floyd Norris, “They Had Fun, Fun, Fun Till the Stock Fell,” New York Times Mar. 29, 2002 (available at http://query.n3Aimes.com/gst/fullpage.htmi2res =9C00E5DE1F3BF93AA15750C0A9649C8B 63&n=Top/News/Business/Companies/AES% 20Corporation). The article adds that some of the loans that AES carried on its books as nonrecourse allowed the creditors to convert the debt to stock, which created the possibility that other investors could be diluted when AES had to issue extra shares at the lower market price.