Federal Court Dismisses Class Action Claims Against Fund Sponsor
The U.S. District Court for the Southern District of New York has dismissed class action claims against a mutual fund sponsor alleging misrepresentations in the registration statement and prospectus. The Court held that the plaintiffs could not adequately prove loss causation because, although the prospectus may not have adequately disclosed risks, the NAV was properly calculated so that the misrepresentations did not cause the loss. The plaintiffs had alleged that the Yield Plus Fund at issue was overexposed to mortgage-backed securities and that the prospectus did not adequately describe the fund’s risks. The Court dismissed the plaintiffs’ claims under Sections 11 and 12 of the Securities Act (civil liability for misrepresentations in a registration statement and prospectus) but indicated that a claim may be stated under Section 10(b). The Court’s opinion conflicts with recent opinions of other courts.
OUR TAKE: We don’t favor class actions against mutual fund sponsors. However, the reasoning of this case is somewhat tortured i.e. the fund sponsor can say almost anything in its prospectus so long as the NAV is correct. We do not expect that this case will stand.
Posted by Todd Cipperman at 4/5/2011 5:22 AM 
Categories: Funds
Tags: liability private right of action class nav
Categories: Funds
Tags: liability private right of action class nav
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