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Thursday, May 22, 2008

Ind. Decisions - "7th Circuit Ruling a Big Win for Mutual Fund Advisers"

Zach Lowe of The American Lawyer reports on the 7th Circuit's decision Monday, May 19th in the case of Jones v. Harris Associates, in a story that begins:

A federal appeals court judge ruled on Monday that courts should not cap fees for mutual fund advisers in a decision that could change the way such fees are regulated.

In his decision in Jones v. Harris Associates, in which several investors accused the fund adviser of deceiving investors and receiving excessive compensation, Judge Frank Easterbrook of the 7th U.S. Circuit Court of Appeals in Chicago said courts should play no part in determining whether fees for mutual fund advisers are reasonable. Market forces guarantee fees will be fair, Easterbrook wrote, and investors will leave a fund if advisers are getting paid too much.

"The trustees [and ultimately investors, who vote with their feet and dollars], rather than a judge or jury, determine how much advisory services are worth," Easterbrook wrote.

The decision upheld fees paid to Harris Associates, the advisers who oversaw the Oakmark Funds in Chicago, says John Donovan, a litigation partner at Ropes & Gray who represented Harris in the case.

Donovan says the ruling could scuttle pending cases against mutual fund advisers and reverse the precedent, set in the 1980s, of allowing judges to regulate fees.

At least a dozen plaintiffs classes have filed suit in the last five years charging fund advisers with receiving excessive compensation, according to Donovan.

Posted by Marcia Oddi on May 22, 2008 01:46 PM
Posted to Ind. (7th Cir.) Decisions