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ICI Mutual Report Explores Litigation Trends in Fund Industry

The industry’s primary insurer in a new report Shareholder Litigation in the Fund Industry notes an overall decline in the frequency of litigation against fund firms in the last decade or so. However, shareholder litigation remains significant with at least 130 shareholder lawsuits initiated against fund groups over the 2010-2018 period. According to the report, since 2000, the plaintiffs’ bar has initiated nearly 400 shareholder lawsuits against fund groups, with approximately 100 lawsuits tied to the 2003-2004 market timing scandal. More than 80% of the total lawsuits have targeted the 100 largest fund groups (based on AUM in the year the lawsuit was filed). With respect to Section 36(b) lawsuits, ICI Mutual reports that more than a dozen of the lawsuits initiated since 2010 have been resolved by agreement of the parties, and in a small number of these cases payments were made by defendant advisers. There is no publicly available information as to dollar amounts. ICI Mutual estimates that the fund industry’s total costs in defending against shareholder litigation for the 2000-2018 period were near $1 billion. The report also discusses forward-looking litigation trends and predicts that “shareholder litigation will, for the indefinite future, remain a periodic and potent threat for fund groups.”

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