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Thursday, October 17, 2019

High court to hear mutual funds case today

By Chris Rizo | Nov 2, 2009

U.S. Supreme Court building

WASHINGTON (Legal Newsline)-The U.S. Supreme Court today will hear arguments in a case that could affect fees that the mutual fund industry charges investors, possibly creating a flood of lawsuits if the high court sides with petitioners in the case.

The case of Jones v. Harris Associates LP will examine standards on how mutual fund overseers determine shareholders' fees.

Petitioners in the case say Harris Associates LP of Chicago -- though its mutual fund unit Oakmark Funds -- charges significantly higher fees to individual investors than to large institutional clients, such as pension plans.

The case was brought by Jerry Jones and two other shareholders of the Oakmark Funds. The petitioners say fees charged by three Oakmark Funds -- Oakmark, Oakmark Equity and Income and Oakmark Global -- were about twice what Harris charged to handle investments for bigger institutional clients.

In 1970, federal lawmakers addressed high fees that were being charged by fund managers by adding Section 36(b) to the Investment Company Act of 1940. The clause says that for fund investment advisers there is: "a fiduciary duty with respect to the receipt of compensation for services."

The three petitioners say that fiduciary duty is breached when small investors are charged more for services than are institutional investors. If the high court rules in favor of the petitioners, it could create a flood of lawsuits.

The 7th U.S. Circuit Court of Appeals in Chicago upheld a U.S. District Court Judge Frank Easterbrook's decision throwing out the case. Easterbrook ruled that mutual fund fees were not excessive as long as they were disclosed to investors and there was no fraud involved.

In an amicus brief, the Mutual Fund Directors Forum said the courts should defer to a fund board's decision to approve the advisory contract.

"Section 36(b) of the Investment Company Act states that an adviser has a fiduciary duty with respect to the receipt of compensation for the services it provides to the fund," the group said. "Section 36(b) also states that the decision of a fund's board of directors in approving the contract governing such compensation should be given 'such consideration by the court as is deemed appropriate under all the circumstances.'"

From Legal Newsline: Reach staff reporter Chris Rizo at

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