Van Kampen Prime Rate Income Trust, a Morgan Stanley subsidiary, agreed to the larger of the two pacts, for $31.5 million that disposed of a 2001 investor class action suit filed in US District Court in Chicago, involving the Van Kampen Senior Loan Fund, the Daily Business Review reported. The second agreement called for a $10-million payment, involved the Morgan Stanley Senior Loan Fund.
Each settlement sum represents the difference between what investors paid for their shares and what they would have paid if the shares had been fairly priced, said attorney Paul Geller.Geller and his colleagues examined the way share price is determined for a specific type of mutual fund called a senior loan fund. Senior loan funds are generally marketed as conservative investments that are similar to money markets or Treasury bills in their low level of risk.
The suits claimed that the net asset value of the funds was vastly overstated in two ways. According to the Daily Business Review report, in violation of Securities and Exchange Commission (SEC) rules, the funds allegedly failed to use market data that accurately valued the fund’s senior loans. Second, the fund assumed, without a reasonable basis that the senior loans were worth face value, rather than their current fair value. That’s the amount the loan would sell for. In some instances, the funds assumed face value for loans even when the underlying debtor corporation was bankrupt.