Department of Labor slams lawsuit seeking to overturn cryptocurrency guidance - Pensions & Investments

The Department of Labor told a District Court that it should reject a plaintiff’s motion in a lawsuit seeking to overturn the agency’s cryptocurrency guidance for 401(k) plan fiduciaries and dismiss the case entirely.
ForUsAll Inc., a 401(k) plan administrator that offers cryptocurrency to participants through a self-directed brokerage window, filed a lawsuit in June in U.S. District Court in Washington, alleging that the Labor Department’s guidance is “arbitrary and capricious” and violated the Administrative Procedure Act.
The lawsuit centers around Labor Department guidance published in March for 401(k) plan fiduciaries telling them to “exercise extreme care” before selecting cryptocurrency as an investment option in plan menus. Fiduciaries that include such investment options or allow such investments through self-directed brokerage accounts “should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of” potential risks associated with cryptocurrencies, the guidance said referring to ERISA’s requirements.
ForUsAll on Nov. 1 filed a motion to dismiss the case so long as the court attached several conditions, including that the Labor Department will not enforce its crypto guidance and that there is “no heightened standard of care beyond the ordinary duty of prudence applicable to decisions to include cryptocurrency.”
In its latest motion filed Monday, the Labor Department slammed ForUsAll’s request, saying the court should instead grant the department’s pending motion to dismiss the case and “reject ForUsAll’s effort at a tactical retreat.”
The Labor Department said the plaintiff has failed “to establish that it has standing to raise its claims.”
Further, the Labor Department reiterated a point it made in September when it filed a motion to dismiss the case by saying the guidance is not a “final agency action” on this topic. The guidance “does not take a ‘definitive position’ vis-a-vis the details of plan fiduciaries’ responsibilities regarding brokerage windows,” the Labor Department said.
ForUsAll did not immediately respond to a request for comment.
In its guidance, the Labor Department spelled out some concerns it has with incorporating crypto assets in participants’ retirement accounts. Doing so presents “significant risks of fraud, theft, and loss,” the guidance said. The risks exist because cryptocurrencies are speculative and volatile investments; pose custodial and record-keeping challenges; present valuation concerns; and contend with an evolving regulatory environment, the department added.
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