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Thursday August 05, 02:20
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Board of Funds Directors May Escape Testifying
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(by G. Andersen)
Directors serving on boards of funds with advisors that have settled with the SEC (Securities and Exchange Commission) may get a reprieve from testifying on multi-district market-timing and late trading civil lawsuits pending in Baltimore’s fourth circuit (Fdir, July). Plaintiffs have prevailed in obtaining a 60-day extension to consolidate their complaints, attorneys say, which were originally due August 3rd. The delay was granted without a fight from defense attorneys because it could benefit their clients as well.
Judges were supposed to receive a consolidated complaint representing all of the plaintiffs suing various fund families which will now be due Sept. 29th. Lawyers say plaintiffs attorneys are looking to stall the process largely to explore whether their clients could make their way into the restitution funds that are a part of recent settlements between the SEC and some advisors that allegedly permitted market-timing and late trading on their funds.
Under recent settlements between the SEC and firms, regulators, under the Sarbanes-Oxley Act, are to set up restitution funds for shareholders. "The SEC used to get penalties; now they can collect and give money to any shareholders who were harmed," says one defense attorney. Getting in on these settlements is seen as more of a sure thing than dragging on separate civil lawsuits.
David Bergers, who worked on the Putnam Investments settlement and is associate director at the SEC, explains that the restitution funds will equal the amount of the settlement with the SEC, and as required under SARBOX, the SEC will hire an outside consultant to oversee distribution. It may be beneficial to funds to try and settle with plaintiffs through the distribution of the restitution fund, but the SEC and its outside consultant would have to see the proposals and approve them. "Our main concern is that the money is distributed fairly," says Bergers. Directors on those funds may be spared from testifying as to what information management did or did not provide the board with respect to market-timing and late trading.
Joel Feffer, a plaintiff’s lawyer for Wechsler Harwood, who is not working on the case but represents fund shareholders in many other fee-related complaints, also notes that plain old disagreements between what should be included in the consolidated claim could be slowing down the process. Feffer says there are many disagreements between attorneys as to whether allegations of excessive fees and revenue sharing should be brought into complaints. There is also discussion of derivative suits whereby shareholders sue to collect damages on behalf of the fund. "And defense lawyers never want to rush litigation along," he says.
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