New Wave of Cases Involving Investment Adviser Fees

New York Law Journal, Outside Counsel; Vol. 250, No. 68, October 4, 2013

St. John's Legal Studies Research Paper No. 19-0021

6 Pages Posted: 12 Jun 2019

See all articles by Francis (Jay) Facciolo

Francis (Jay) Facciolo

St. John's University School of Law

Leland Solon

Law Firm of Gary N. Weintraub, LLP

Date Written: 2013

Abstract

Shareholders challenging fees paid to the advisers of their mutual funds in civil lawsuits under §36(b) of the Investment Company Act face steep substantive and procedural challenges, but a recent decision from the federal district of New Jersey holds promise for private plaintiffs in this area. The central allegation in Kasilag v. Hartford Investment Financial Services was that the defendant investment adviser retained subadvisors to perform substantially all of the investment management services for the defendant’s client mutual funds, and then charged its fund clients much higher investment management fees than what those services actually cost defendant. Based on these allegations, the federal district court denied the investment manager’s Rule 12(b)(6) motion to dismiss and allowed the shareholders’ lawsuits to proceed.

The victory for the plaintiffs in Kasilag stands in contrast to the defeats of many other prior plaintiff shareholders who could not present convincing evidence that the challenged advisory fees were excessive. Forced to rely on speculative arguments as to what discovery would reveal, these plaintiffs often were unable to survive the crucial pretrial motion to dismiss stage, and, even if they did get past this stage, inevitably lost at either the summary judgment stage or trial. By highlighting the role of the sub-advisers, the plaintiffs in Kasilag were uniquely able to make a plausible showing that the defendant’s investment management fees were excessive under the circumstances.

A prior recent case, Curran v. Principal Management, also involved similar but less detailed sub-adviser allegations than Kasilag. Reportedly settled in May 2013, Curran resulted in a 2010 court decision denying defendants’ Rule 12(b)(6) motion to dismiss, a decision in which the judge even remarked that the plaintiff shareholders would probably be able to get past motion for summary judgment.

Suggested Citation

Facciolo, Francis and Solon, Leland, New Wave of Cases Involving Investment Adviser Fees (2013). New York Law Journal, Outside Counsel; Vol. 250, No. 68, October 4, 2013, St. John's Legal Studies Research Paper No. 19-0021, Available at SSRN: https://ssrn.com/abstract=3402157

Francis Facciolo (Contact Author)

St. John's University School of Law ( email )

8000 Utopia Parkway
Jamaica, NY 11439
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7189901832 (Phone)
7185911855 (Fax)

HOME PAGE: http://www.stjohns.edu/law

Leland Solon

Law Firm of Gary N. Weintraub, LLP ( email )

Huntington, NY 11743
United States

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