A nationwide class action has been filed against banking giant Bank One Corporation alleging that the company mismanaged its employees' 401k accounts. The action is brought under the federal ERISA statute on behalf of all Bank One employees who, between March 22, 2002, and the present, participated in the company's 401k retirement plan and whose investments in the plan included Bank One stock or mutual funds. The employees allege that Bank One breached its fiduciary duty by allowing Bank One stock and mutual funds to be diluted in value through illegal activity, yet continued to encourage the employees to invest in these securities. The employees are seeking compensatory damages, a constructive trust to control unjustly-obtained profits, the restoration of profits lost by the plan, and declaratory and injunctive relief.

This action arises from what employees allege is illegal trading activity, activity that they assert was allowed and encouraged by Bank One. These alleged activities center around Bank One's mutual funds, particularly Bank One's "One Group" funds, but allegedly impact Bank One stock as well. According to the employees, Bank One allowed third parties to execute "timed" and "late" trades on these mutual funds. Timed trades are strictly short-term and are meant to take advantage of differences in time zones to trade on international markets. Under this scheme, the employees allege that third parties were able to utilize information that was known in the United States, but actually occurred after international markets had closed, to turn a quick profit. For example, if a company in Japan released positive information after trading was closed in that market, traders in the U.S. could take advantage of that information and invest in those securities prior to the foreign market's making adjustments. This offers the chance for a quick turn-around.

Employees claim that when these third parties cashed in securities purchased through timing, the Bank One fund manager was required to either pay the third parties from cash in the mutual fund or sell stock to compensate the third parties. This, employees assert, diluted the value of Ban One's mutual funds and stock.

"Late" trades are meant to capitalize on domestic market fluctuations. Prices on mutual funds, unlike stocks, are set daily; a fund maintains the same price all day. Once trading on mutual funds is closed, the price is subject to change as the result of information released after trading has ceased. However, if a trader were able to purchase shares in the mutual fund at the price at which it closed, armed with new positive information, he or she is given the ability to turn a quick profit as there is a good chance the value of the shares would increase the next day. The employees allege that, like the timed trades, Bank One facilitated late trades by allowing third parties to purchase Bank One mutual fund shares at the prior day's closing price well after trading had ended for the day. Again, profits generated by these trades must come from the mutual fund itself, and the employees allege that the result was a dilution of the funds.

Throughout this time, the employees claim that Bank One was encouraging them to purchase Bank One stock and invest in the Bank One mutual funds. Bank One, it is alleged, was turning a profit from various fees it was charging the third parties to execute trades. The employees claim that Bank One was offsetting lost profits in its funds and stock by encouraging Bank One employees to invest heavily in the company. The employees claim that this encouragement took the form of activities such as matching the contributions of employees, directing employees to purchase Bank One securities and investing for the employees in Bank One securities. The employees claim that Bank One gave them a false sense of security in the Bank One stock and funds. Additionally, the employees claim that penalties existed regarding short-term activity, but Bank One waived these penalties when the third parties were executing trades. As a result of Bank One's allegedly fraudulent activities, the New York Attorney General has named several of the Bank One funds as engaging in illegal trading. Further, employees claim that late and timed trading is forbidden by the prospectuses for the mutual funds, and that Bank One claimed it policed these activities strictly.