A district judge has rejected a lawsuit accusing the Department of Labor (DOL) of unlawfully issuing guidance on cryptocurrencies.
401(k) provider ForUsAll previously filed a complaint against the DOL in June 2022, alleging the government agency operated within a scope outside of their range when it issued a bulletin on the digital assets without undergoing a required comment period. ForUsAll also accused the DOL of attempting to limit cryptocurrency in retirement accounts, calling it “arbitrary and capricious.”
As a result, ForUsAll said that it had lost up to a third of its potential client base due to the guidance, and more specifically, prompted retirement plans to “back out” of discussions in partnering with the company.
In its complaint, the San Francisco-based provider requested a declaration affirming the guidance was unlawful, an order vacating it, and an injunction that would prevent the DOL from applying the guidance in any manner.
In his dismissal, District Judge Christopher R. Cooper said ForUsAll lacked legal standing to proceed as it could not prove the DOL’s guidance had financially harmed its business. He added that even if the company had proved that the bulletin impacted client relationships, the relief ForUsAll was looking for would not help the company in any way.
“Although ForUsAll adequately alleged that the retirement plans terminated their discussions because of the Release, there is not a reasonable basis for believing that the requested declaratory and injunctive relief would restart those negotiations and thereby cure the alleged injury,” Cooper found. “Without the power to provide effective relief, the Court must dismiss all claims.”
Prior to the dismissal, the DOL accused ForUsAll of misinterpreting its guidance and failing to establish any standing, adding that the court had no jurisdiction over enforcing cryptocurrency investment offerings. The DOL further argued that its guidance actually stated that cryptocurrency as an investment option may comply with fiduciary duties, depending on “specific circumstances in a given situation.”
Ultimately, Cooper sided with this notion, adding that: “The release reminds retirement plans that they have fiduciary obligations to participants under ERISA, outlines a list of ‘significant risks and challenges’ associated with cryptocurrency investments that the department finds troubling, and alerts plans that the department expects to conduct inquiries and investigations to ensure that these plans are complying with their duties when offering investment options in this area.”
“All of this would remain the same if the court vacated the order,” Cooper added. “Third-party plans would still have fiduciary duties to act with prudence under ERISA [Employee Retirement Income Security Act of 1974], and they would remain subject to possible investigations and enforcement actions by a Department that has expressed grave concerns about retirement plans offering investments in what it perceives as an overly risky market.”
The Department of Labor’s guidance initially cautioned retirement plan sponsors against offering cryptocurrencies in retirement plans, adding that fiduciaries could face an “investigative program” if they allowed digital currencies in their 401(k) plans.
The lawsuit had also come during a time when more 401(k) fiduciaries were being cautioned against offering cryptocurrencies in their retirement plans, and even before the collapse of mega crypto exchange platform FTX.
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