Participants in the Emerald Coast Eye Institute (ECEI) 401(k) plan have filed a lawsuit alleging that the company and its founder Samuel Poppell breached their fiduciary duties of prudence under the Employee Retirement Income Security Act (ERISA) by not properly diversifying investments.

Poppell selected and controlled investments in the plan, and plan participants did not have authority to choose how their assets were invested. According to the complaint, he chose to significantly concentrate the ECEI plan assets in a single holding, VirnetX, and further failed to remove this holding as it continued to lose value. The ECEI plan’s non-cash investments were at times entirely concentrated, or nearly entirely concentrated, in VirnetX.

The complaint notes that Poppell was not a licensed or registered investment adviser or financial professional, and he did not maintain certifications in any investment related area. He had no meaningful expertise, education, or professional knowledge in finance, investment management, or portfolio management. It also claims that on multiple occasions he rejected suggestions and recommendations, including from the plan’s third-party administrator, to retain a qualified investment adviser or manager to manage the ECEI plan portfolio.

The lawsuit says the defendants learned of VirnetX through online message boards and “unqualified or speculative” investment blog-type websites. They did not conduct sufficient or adequate due diligence of VirnetX or many of the other securities purchased in the ECEI plan portfolio. VirnetX has widely been identified as, referred to as, and accused of being a “Patent Troll.” Patent Trolls are companies that exist primarily or exclusively to pursue aggressive patent-infringement lawsuits against other companies.

As of December 31, 2014, the ECEI Plan’s total exposure to VirnetX was in excess of 50%, with the remaining holdings concentrated in cash equivalents. By the end of 2014, the ECEI Plan’s position in VirnetX had already declined in value by $543,235.91 since Defendants’ initial purchase. On or about the morning of September 16, 2014, VirnetX stock plummeted in value by nearly 50%. Through the filing of the complaint, VirnetX’s share prices have declined over 90% compared to the share price on June 1, 2012.

The lawsuit alleges that defendants knew or should have known that in taking such significant risks they were not acting in the best interest of plan participants and their beneficiaries, particularly in light of the fact that numerous class members were at or near retirement age. In addition, it says, as a result of defendants’ actions, plaintiffs and members of the proposed class suffered significant losses. “In particular, the ECEI Plan suffered actual losses in excess of $600,000, and additional underperformance damages estimated to be in excess of $500,000,” the complaint says.

The lawsuit also contends the named plaintiffs were fired for bringing up their concerns about the plan’s investments to the plan’s third-party administrator and Poppell.