American Funds Rings in the New Year With a Victory in Court
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Monday, January 4, 2010

American Funds Rings in the New Year With a Victory in Court

Mutual fund industry insiders can rest a little easier in the new year, as Capital Group is about to beat back a lawsuit over its use of 12b-1 fees. On December 28, United States District Court Judge Gary Feess ruled that In re American Mutual Funds Fee Litigation, first filed in July 2004 as Nicholas J Corbi et al v The Capital Group Companies Inc et al, "must be dismissed and judgment entered for CRMC [Capital Research and Management Company, advisor to the American Funds] and AFD [American Funds Distributors, Cap Group's distributor B-D]." The judge asked American Funds to file a "proposed judgment consistent with these findings and conclusions" by Friday, January 8.

Maura Griffin, a spokeswoman for Capital Group, told The MFWire that the fund firm is "pleased with the ruling."

"We were especially pleased that the court said that the unaffiliated directors were diligent in their responsibilities," Griffin said, "and that the fees were not disproportionate to the services rendered."

Yet the judge tempered his ruling with some harsh words for Capital Group.

"That conclusion should not be mistaken for a determination that the directors obtained the best possible deal for investors ... Although Defendants proposed certain findings that included what amounted to a commmendation for the work of the directors, they will have to be satisfied with merely winning the lawsuit," Feess wrote. "The Court finds little in the record to establish a potent incentive on the part of the directors ... to police the compensation paid to CRMC to manage the funds."

Feess also seems to express sympathy with the plaintiffs and even suggests that, because of the high legal standard set for attacking mutual fund firms over fees, "a defendant's success in litigation, where the availability of a better bargain is considered insufficient to prove a breach of fiduciary duty, proves little about the conduct of the unaffiliated directors."

Milberg and Weiss & Lurie serve as the plaintiffs' attorneys in this suit. Another law firm, Wolf Haldenstein Adler Freeman and Herz, also filed two other similar suits against Capital Group in July 2009.

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