Plaintiff Milton Pfeiffer had alleged in his federal court suit that Dreyfus had committed a breach of fiduciary duty in continuing to charge 12b-1 fees against fund assets for marketing and distribution services even though new investors could no longer get into the funds.
Dreyfus said in a statement that it had argued that it was allowed to collect the 12b-1 fees to get reimbursed for sales commissions it had already advanced to intermediaries who sell fund shares. Dreyfus added: “In addition, 12b-1 fees support marketing and shareholder servicing activities critical for a fund to maintain its asset size.”
Dreyfus said it successfully demonstrated to the plaintiff that it had complied with Rule 12b-1, under which fees may legitimately be charged to funds that are closed to new investors. Dreyfus went on to note that, “What seems to be often misunderstood is that 12b-1 fees on Class B shares reimburse the distributor for sales commissions that the distributor advances to intermediaries who sell fund shares. Since it generally takes six years for the distributor to recoup the commissions it has paid out upfront, the distributor — when a fund closes — is entitled to be reimbursed for amounts it has advanced.”