Supreme Court Should Restore Fiduciary Responsibility to Mutual Fund Advisers' Fees and Remove Roadblocks Barring Investors From Statutory Remedy, Investor Advocates Say

Supreme Court Should Restore Fiduciary Responsibility to Mutual Fund Advisers'
Fees and Remove Roadblocks Barring Investors From Statutory Remedy, Investor
Advocates Say

WASHINGTON, Nov. 2 /PRNewswire-USNewswire/ -- As the Supreme Court prepares to
hear oral arguments today in Jones v. Harris Associates, LP, the National
Association of Shareholder and Consumer Attorneys (NASCAT) explained why the
Supreme Court should side with mutual fund investors by removing lower court
roadblocks that have barred shareholders from the remedy to excessive
investment advisory fees that Congress enacted for them in the Investment
Company Act as amended in 1970. In its amicus brief submitted to the Court on
June 17, NASCAT gave voice to the legal rights and concerns of tens of
millions of mutual fund shareholders in the face of a well-organized and
powerful mutual fund lobby.

"Although Congress and the Supreme Court recognize that mutual fund investors'
ability to prosecute claims is essential to police excessive fund advisory
fees, no fund shareholder has ever successfully brought a case against an
advisor," explained Ira Schochet, Esq., NASCAT's president. "Does this mean
mutual fund advisors have never overcharged investors? Not at all; it is
common knowledge on Wall Street that advisory fees are frequently excessive
and can seriously erode fund investors' returns."

This problem can be so severe that former SEC chairman Arthur Levitt has
described mutual fund advisory fees as a "tyranny of compounding high costs"
that are imposed upon shareholders.

"Despite this widely acknowledged problem, decades of misapplied and overly
restrictive lower court decisions have effectively denied a remedy to the tens
of millions of investors who have been harmed and who have faced a legal
playing field tilted against them," Mr. Schochet continued. "This case is of
paramount importance to the estimated 92 million individual mutual fund
investors who represent nearly half of all U.S. households because for the
first time the Supreme Court will determine how investors with meritorious
claims can successfully obtain justice under a law that Congress passed to
protect them and give them a remedy."

The applicable law and right of private action is Section 36 (b) of the
Investment Company Act (ICA). It says mutual fund advisers have a "fiduciary
duty" with respect to compensation for their services, and gives shareholders
a private right of action if advisers breach that duty.

In the underlying investor case at issue, Jones v. Harris Associates, LP
(2008), advisory fees charged to shareholders in the Oakmark "family" of
mutual funds by Harris Associates, L.P. grew from $2.45 million (or 0.83
percent of assets managed) in 1993 to $107 million (0.91 percent of assets) in
2003. Oakmark Funds under management by Harris grew rapidly during those
years. Rather than following the industry practice of decreasing its fee rate
as fund assets grew, however, Harris increased its rate and otherwise denied
Oakmark shareholders the benefits of economies of scale enjoyed by mutual fund
advisers as assets grow, according to shareholders' complaint. Moreover, the
fee rates charged by Harris to Oakmark investors were nearly double the rates
it charged to manage and advise pension fund and other institutional clients.

The federal Court of Appeals for the Seventh Circuit dismissed Oakmark
shareholders' suit against Harris because, the Court said, given proper
disclosure of such fees, the level of an adviser's fees should be determined
by the market place. Yet, in his dissent from this decision, Seventh Circuit
Judge Posner opined that "competition in product and capital markets can't be
counted on to solve the problem" of excessive fees . . . [and that] "mutual
funds are a component of the financial services industry, where abuses have
been rampant."

Nearly three decades earlier in a similar case, the federal Court of Appeals
for the Second Circuit held in Gartenberg v. Merrill Lynch Asset Management
(1982) that a violation occurs when the adviser charges a fee that is "so
disproportionately large that it bears no reasonable relationship to the
services rendered" and would be considered outside "the range of what would
have been negotiated at arm's length."

"Both the Harris and Gartenberg decisions needlessly throw road blocks in the
path of mutual fund shareholders seeking redress for excessive advisory fees,"
Mr.Schochet said. "Recent history demonstrates we cannot rely upon the
financial marketplace to regulate financial advisers as Harris would have us
do in the absence of outright fraud in disclosure of fees. And, courts have
interpreted the earlier Gartenberg decision to mean that shareholders must
acquire and analyze mutual fund profitability data and other information
beyond their ability to obtain in order to prove an adviser's fees are
'disproportionately large'."

NASCAT believes a far better solution for aggrieved mutual fund investors can
be found in a decision earlier this year (Gallus v. Ameriprise Finance, Inc.)
by the federal Court of Appeals for the Eighth Circuit.

"Gallus refers back to the ICA's focus on mutual fund advisers' fiduciary
responsibilities and would enable investors to prove an adviser's breach of
these responsibilities by demonstrating that the adviser was not 'honest and
transparent during the negotiation process,' and calls for the court to look
at 'both the adviser's conduct during negotiations and the end result'," Mr.
Schochet explained. "NASCAT respectfully asks the Supreme Court to reverse
the Seventh Circuit's Harris decision and to require courts to apply the
fiduciary duty standard found in the ICA itself."

The National Association of Shareholder and Consumer Law Attorneys is a
nonprofit organization comprised of about 100 law firms representing consumers
and investors - including pension funds and individuals - in cases of
securities fraud and other forms of "white collar" wrongdoing and criminal
activity.

SOURCE National Association of Shareholder and Consumer Attorneys

Ira Schochet, Esq., President, National Association of Shareholder and
Consumer Attorneys, +1-212-907-0700; or Jeff McCord, McCord & Associates,
+1-540-364-4769, for the National Association of Shareholder and Consumer
Attorneys