Both Transamerica [profile] and First Eagle [profile] have big legal news this week, one ending and one beginning.

Mehdi Mahmud First Eagle President and CEO

For First Eagle, a court fight for the New York City-based, private-equity-backed mutual fund shop seems to be ending, and in a way that should make First Eagle chief Mehdi Mahmud and his team smile. In 2014 a pair of investment trusts sued First Eagle for charging more in its mutual funds than for its subadvisory work. Yet this Wednesday, after an extensive discovery process, lawyers from Schnader Harrison Segal & Lewis and Zwerling, Schachter & Zwerling (both representing the plaintiffs) asked U.S. District Court Judge Mark Kearney to dismiss the suit against First Eagle; the judge promptly obliged.

First Eagle argued, as other fundsters might anticipate, that it does more work and handles more services when it runs its own funds than when it subadvises for someone else, which explains the fee difference. So good news, fundsters: different service justifies different fees, at least in this case. There was no settlement, though, and each side agreed to pay its own court costs.

"The plaintiffs have said, 'If you're managing money for somebody at a different fee than you're managing the mutual fund, it's got to be a breach of fiduciary duty,'" Lori Martin, a partner at Wilmer Hale and an attorney for First Eagle, tells WealthManagement.com's Diana Britton. "That claim is just flawed because it doesn't take into account that a mutual fund advisor has a board — a subadvisor does not, that it has cash management for daily inflows and outflows — a subadvisor does not do that, it has compliance oversight, it has a variety of functions for running a registered mutual fund that running a separate account or subadvised account does not entail."

The case, Kennis, et al v. First Eagle, was in the U.S. District Court for the District of Delaware. It was switched to Judge Kearney last week, who then scheduled the trial for March of next year.

As for Aegon subsidiary Transamerica, possible legal pain is just beginning. Yesterday the Los Angeles-based insurer revealed in an SEC filing that the SEC is investigating "errors in the operation and/or implementation of an asset allocation model" used by Aegon USA Investment Management (AUIM), a former subadvisor to several risk-based Transamerica mutual funds and variable annuities. Transamerica reveals that, according to "expert analyses", the errors "did not have a material adverse impact on fund performance", which hopefully means minimal harm to fund investors and thus less painful punitive action down the line (if it comes to that).

A spokesman for Transamerica confirms to CityWire USA's Andrew Jones that the SEC investigation involves "certain investment strategies developed by a former portfolio manager of Aegon USA Investment Management, LLC." An SEC spokeswoman declined to comment to the trade pub, citing agency policy regarding pending investigations.

The funds and variable annuities that AUIM used the model in question for include: the Transamerica Dynamic Income Fund, the Transamerica Dynamic Allocation Fund, the Transamerica Dynamic Allocation II Fund, the Transamerica Managed Risk - Conservative ETF VP, the Transamerica Managed Risk - Balanced ETF VP, the Transamerica Managed Risk - Growth ETF VP, the Transamerica QS Investors Active Asset Allocation - Conservative VP, the Transamerica QS Investors Active Asset Allocation Moderate VP, and the Transamerica QS Investors Active Asset Allocation - Moderate Growth VP. AUIM stopped subadvising some of the funds on April 30, 2015 and the rest on June 30, 2015. 

Edited by: Neil Anderson, Managing Editor


Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE