Four former Allstate employees were awarded more than $27 million by a federal jury in a defamation lawsuit against the company, according to a recent report in the Chicago Tribune.

The employees, all part of a now-defunct equity division at Northbrook-based Allstate, were fired in December 2009 for allegedly timing trades to boost their own incentive bonuses at the expense of the company's investment portfolios, according to court documents.

Allstate blamed “some employees” in a February 2010 Securities and Exchange Commission filing for timing trades, which the company said may have cost the portfolios more than $200 million over six years, while netting $1.2 million in bonuses for equity division employees.

Although they were never named by Allstate, Daniel Rivera, Stephen Kensinger, Deborah Joy Meacock and Rebecca Scheuneman filed the defamation lawsuit in March 2010, claiming they were falsely accused of wrongdoing by the SEC filing.

“If you connect the dots, you would be led to believe it was my guys who did this,” said Robert Sweeney, a Chicago lawyer representing the four former Allstate employees. “It ruined their careers.”

Sweeney said the four were simply following protocols and Investing 101 — buy low and sell high — while executing trades at the direction of the company. Rivera was head of the equity division, while the other three were part of the growth team.

The defamation lawsuit, filed in the federal district court in Chicago, took six years to get to trial. The jury verdict, announced June 21, awarded the employees a total of $27.1 million, including $10 million in punitive damages.

“Allstate disagrees with the jury's verdict,” Allstate spokeswoman Laura Strykowski said in a statement Thursday. “We continue to believe in our case and are reviewing our post-verdict options.”

According to the lawsuit, the equity division was in charge of managing portfolios for Allstate and its pension plans. On most occasions, Rivera would receive directions from Allstate’s Portfolio Management Group or the pension plans manager regarding when to buy or sell for large program trades. The trades were then executed within the parameters provided.

Equity employees were entitled to performance bonuses based on a system that paid a premium for buying on a down day and selling on an up day for the markets at large, as opposed to measures based on absolute return, according to the lawsuit.

According to documents filed by Allstate in the case, Allstate brought in a consulting firm and launched an investigation into trading practices within the equity division in the summer of 2009. The consultants estimated that the alleged trade timing may have cost the pension funds $91 million, with company portfolios adversely impacted by $116 million.

“The inference was that there was wrongdoing by people in the equities department, and that they improved their bonuses as a result,” Sweeney said. “We came back and showed it had nothing to do with that. This was a policy that Allstate had in place as result of their performance measurement system, which has been referred to as arcane and imprecise.”

The company announced the decision to disband the equity division in October 2009, outsourcing management of its equities to Goldman Sachs. Two months later, the four employees were terminated for cause and told they had violated the conflict of interest provision of the company’s code of ethics, according to the lawsuit.

Allstate is subject to further punitive damages related to potential violations of the Fair Credit Reporting Act for failing to provide the four employees with a summary of the investigation that led to their termination. Motions on those issues will be filed within two weeks, Sweeney said.

The case is Daniel Rivera, et al. v. Allstate Insurance Co.

Special Reports /

Jury awards $27 million in defamation lawsuit to fired Allstate employees

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