BOSTON (Reuters) - An investor has sued Fidelity Investments and its units in court, charging them with making misleading statements and risky investments in a bond fund that led to losses.
The suit against Fidelity follows similar ones against other financial firms, including State Street Corp (STT.N) and Charles Schwab Corp SCHW.O, over bond fund losses since the credit crisis hit about a year ago.
Filed on behalf of investor Alan Zametkin on June 5 in the U.S. District Court of Massachusetts, the suit charges the world’s biggest mutual fund company, its brokerage arm and trustees of the Fidelity mutual funds of selling the Fidelity Ultra-Short Bond Fund as a safe investment and putting the money in risky mortgage-related securities.
“The so-called ‘risk and volatility measure’ disclosed by defendants in connection with the Ultra-Short Bond Fund was not sufficient or meaningful to advise investors of the actual risks associated with investing in the Ultra-Short Bond Fund,” the investor said in a 15-page complaint.
“The risk and volatility measure did not warn that the Ultra-Short Bond Fund was so heavily invested in high-risk mortgage-backed securities,” the complaint said. The fund had nearly two-thirds of its assets in mortgage-related securities as of mid-2007, it said. The suit seeks class-action status.
The fund’s net asset value per unit took a hit, falling to $8.25 in June from as high as $9.58 about a year ago, it said.
Fidelity said the lawsuit was “without merit” and it would fight it “vigorously”.
“Like other fixed income funds, Fidelity Ultra-Short Bond Fund has faced an unusually challenging market environment. The majority of the fund’s subprime mortgage investments were in the highest-rated ‘AAA’ and ‘AA’ securities,” spokesman Vin Loporchio said.
The $330.2 million Ultra-Short Bond Fund was down 13 percent in the 12 months to the end of May, against a 5.1 percent gain for the Lehman Brothers 6-month Swap Index.
Reporting by Muralikumar Anantharaman; Editing by Braden Reddall