Dallas Lawyers Sue Fund Cos. for Not Collecting Settlement $$

January 19, 2005 (PLANSPONSOR.com) - A Dallas law firm has filed a series of lawsuits against mutual fund companies, alleging that they failed to collect money due to their investors from settlements of securities class-action lawsuits.

The suits, filed in federal courts across the country, pointed the finger of blame at 40 fund managers, including The Vanguard Group, Wells Fargo, Janus and Dreyfus, accusing them of violating their fiduciary duty, according to a New York Times report.

Attorney Randall Pulliam told the Times that the firms have left behind a total of $2 billion from the $12.5 billion won in settlements with more than 100 companies including Lucent Technologies, PeopleSoft,   Rite Aid and Nike.

“These funds are failing to actually go out and capture that money,” Pulliam told the newspaper. “They have no valid excuse not to file proofs of claims.” But several firms said yesterday that the lawsuits had their facts wrong, and that when appropriate, the firms did file claims to recover money for their investors.

Nonetheless, the litigation may yet prove to be another potential embarrassment for the mutual fund industry, which is still recovering from recent scandals at some funds over improper trading practices, like market timing and late trading The lawsuits revolve around basic issues: whether the mutual fund held shares in a company that settled a securities lawsuit, whether the mutual fund had an obligation to claim its share of settlement money on behalf of its investors and whether the specific fund filed such a claim.

Vanguard contends that it has filed such claims. “A preliminary review of the named settlements leads us to believe that in instances where, first, we held the security, and, second, we were eligible for recovery, we filed proofs of claim,” John Woerth, a Vanguard spokesman, told the Times. “As a result we believe the complaint is without merit.” Representatives of Dreyfus and Merrill Lynch responded that their funds regularly file claims on behalf of their investors and that they considered the complaints without merit.

However, a decision by fund managers to file the claim may prove more costly than it is worth because of the effort needed to keep track of settlements to determine which cases a particular fund family is eligible for reimbursement.

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