Deals & People November 14, 2008

Wachovia Execs Out After Wells Acquisition

Only one Wachovia executive will remain on the combined Wells/Wachovia senior executive team, according to a news report.
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Reuters reported that Wells Fargo & Co will control 11 of the top 12 jobs after the company’s acquisition of Wachovia is final (see Wachovia Leaves Citigroup at the Altar). The appointments were announced internally Thursday by Wells Fargo’s Chief Executive John Stumpf.

The only Wachovia executive to remain is David Carroll, Wachovia’s head of capital management. Carroll will oversee the wealth management unit, which includes Wachovia Securities and its 14,600 representatives.

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The report said the following senior management members of Wachovia will be leaving: Robert Steel, CEO; Ben Jenkins, retail banking chief; Steve Cummings, corporate and investment banking chief; and David Zwiener, CFO. Two other executives, Cece Sutton and Jonathan Witter, will reportedly leave to run the new retail banking operations at Morgan Stanley.

Reuters said the following members of the Wells Fargo management team will remain:

  • Howard Atkins, chief financial officer;
  • Pat Callahan, head of merger transition;
  • Dave Hoyt, who will oversee wholesale banking, investment banking, and Wachovia’s Evergreen asset management unit;
  • Mike Loughlin, chief risk and credit officer;
  • Kevin McCabe, chief auditor;
  • Avid Modjtabai, technology and operations chief;
  • Mark Oman, who will oversee home lending;
  • Kevin Rhein, credit cards and consumer lending chief;
  • Jim Strother, general counsel; and
  • Carrie Tolstedt, who will run retail banking.
Compliance November 14, 2008

Avaya Wins Appeal in Stock Drop Case

A former communications company employee battling in support of his stock-drop lawsuit suffered his second major legal setback.
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A federal appellate court backed a lower court judge, who ruled he had not proven his allegations.

The 3rd U.S. Circuit Court of Appeals asserted that U.S. District Judge Joel A. Pisano of the U.S. District Court for the District of New Jersey was correct when he declared in April 2007 that plaintiff Byron Ward had failed to prove fiduciaries of Avaya Inc.’s defined contribution plans breached their fiduciary duties (see “Court Finds Employees Missed ERISA Fiduciary Breach Case“). Ward charged that the plans should have sold off the communications firm’s stock during a period when the company was experiencing serious financial difficulties.

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The appellate panel found that Ward had not overcome a legal standard set by a 3rd Circuit 1995 case that if a plan mandates company stock be offered as an investment option, a fiduciary acts prudently if he or she retains the company stock as an investment option. The appellate judges explained that the prudence presumption set by the 1995 case can be rebutted if a plan participant is able to show that the company is in such a dire financial state that continued investment in the company’s stock would be unreasonable.

In light of that, wrote Circuit Judge Kent A. Jordan for the court, while there was a significant dip in the price of Avaya’s stock during the period covered by Ward’s suit, he was unable to “point to anything other than Avaya’s financial struggles to support his breach of fiduciary duty claim.” Also, according to the court, while Avaya’s stock price dropped significantly, by 2003 and 2004 the stock price had rebounded.

Short-Term Difficulties

Avaya was established in September 2000 through a spinoff from Lucent Technologies Inc. Employees of Avaya participated in three different defined contribution pension plans, all of which allowed employees to invest in the Lucent Stock Fund and the Avaya Stock Fund. Lucent and Avaya both suffered financially during the first three years following the spinoff.

Jordan said, at most, Ward’s allegations demonstrated that during the period at issue in the case, Avaya was undergoing corporate developments that were likely to have a negative impact on the company’s earnings. “That alone does not suffice to rebut the presumption that the defendants acted within their discretion in refusing to halt or alter the Plan’s investments in Avaya stock,” Jordan wrote.

Jordan asserted: “short-term financial difficulties do not give rise to a duty to halt or modify investments in an otherwise lawful ERISA [Employee Retirement Income Security Act] fund that consists primarily of employer securities.” the appeals court said.

The case is Ward v. Avaya Inc., 3d Cir., No. 07-3246, unpublished 11/13/08.

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