The Month in Finance

EMPLOYEE BENEFITS

Workers Can Sue Over 401(k)s Losses

The Supreme Court has decided that individual participants in 401(k)s have the right to sue employers over losses. The case in which James LaRue sued his employer, DeWolff Boberg & Associates, for failing to make investment changes he requested in his account, resulting in substantial losses, is a victory for workers, retirees, and the advocacy groups that support them.

MARKET VALUE QUESTION

AIG Loss Renews Accounting Rules Debate

The ongoing debate about the pros and cons of market-value accounting rules got louder after American International Group (AIG) reported a Q4 loss of $5.29 billion on the heels of an $11.12 billion pretax write-down on the value of mortgage-related investments. The stock market shuddered at the news, which analysts consider partially responsible for the ensuing 315-point drop in the Dow. But AIG's write-down may never result in an actual charge to the company because they don't plan to sell at the market price. Still, nobody can come up with a better pricing model; regulators fear that models that don't consider market value could result in another drop in investor confidence and even greater market turmoil.

A MAY SENTENCING

Gang of Five Goes Down

Four General Re executives and one from AIG were convicted on fraud charges relating to a reinsurance scheme that inflated AIG's reserves in 2000 and 2001, artificially buoying its stock price. Federal prosecutors indicated that they've discovered evidence in their investigation that could lead to future charges against other individuals. The defendants, including former General Re CFO Elizabeth Monrad, will be sentenced May 15.

LARGEST AUDIT SUIT EVER

Ernst & Young, Cendant Settle

The Big Four firm will pay $300 million to Cendant Corp. for failing to spot a major fraud during its audits of a Cendant unit more than ten years ago. Ernst had already paid out $335 million to the company's shareholders due to the fraud, which The Wall Street Journal says it believes is the largest settlement against an auditor related to a single client.

GOVERNMENT LEADERS

Nation's Top Accountant Steps Down

David M. Walker, head of the Government Accountability Office (GAO), will become president and chief executive officer of The Peter G. Peterson Foundation, a private research foundation. The foundation will focus on healthcare, trade and budget deficits, energy consumption, and education. Walker, who had long expressed his concern about such important national sustainability issues on the conference circuit, will be replaced temporarily by the GAO's chief operating officer.

DISCRIMINATION LITIGATION

Supreme Court Decides Big-Stakes Suits

Age and race discrimination lawsuits have a high profile on the Supreme Court's Docket this term. In one case, the Roberts court decided that a 51-year-old woman who was laid off by a Sprint Nextel Corp. subsidiary is allowed to bring in testimony from other employees — who may have worked for other supervisors in different parts of the company — that they were discriminated against due to their age in an effort to prove that the company culture supported age discrimination. The case has far-reaching effects: The decision could also be applied in other forms of discrimination.