A class action has been filed against Sears Roebuck & Company on behalf of participants in Sears’ 401(k) plan who allege that the company violated the federal Employee Retirement Income Security Act by failing to disclose nonpublic information about its financial condition. The action seeks restoration of all lost profits from the plan that were due to the defendants’ breaches of fiduciary duty.

The lawsuit, which resembles recent class actions against large firms such as Enron Corporation, WorldCom, Inc., and Kmart Corporation, alleges that Sears caused its 401(k) plan participants to invest in Sears stock when the company knew it had made mistakes when it filed its Securities and Exchange Commission financial reports for 2002. According to the court, Sears represented in its 2001 annual SEC report that the company had uncollectible accounts calculated at $1.344 billion. In May 2002, Sears filed its first quarter financial report, which indicated that the provisions for uncollectible accounts increased from $190 million to $317 million in the first quarter of 2002. At this time, Sears stock was trading at nearly $60 per share, according to the court.

In August 2002, Sears filed another quarterly report, which stated that it was making a "conservative accounting change" in determining its uncollectible account allowances. In the months following the August 2002 filing, Sears issued a series of reports indicating it had misstated its uncollectible accounts. In reaction to Sears's announcements, the value of its stock dropped to $23.15 per share in October 2002. According to the court, before Sears announced that it had misstated its uncollectible accounts, the 401(k) plan held $1.1 billion in Sears' stock, which represented one-third of all plan assets.

Named as defendants in the lawsuit are Sears, its board of directors, three of the company's top executives, and members of the plan's investment committee.