A newly proposed bill offered by U.S. Rep. Tom Emmer (R-MN) aims to reduce frivolous lawsuits and protect the millions of Americans who invest in mutual funds.
“While legal recourse is sometimes necessary, frivolous lawsuits are all too common” for mutual fund advisers, Rep. Emmer said. “By ensuring that claims have evidence and are worth pursuing, we can support legitimate legal claims, as well as increase the stability and growth of the funds that secure our future.”
Under the congressman’s bill, during any breach of fiduciary duty lawsuit brought against mutual fund advisers by the security holder of a registered investment company, the security holder would bear the burden of proving the breach “by clear and convincing evidence.”
Rep. Emmer on Feb. 2 sponsored the Mutual Fund Litigation Reform Act, H.R. 699, which would stiffen the pleading requirements for plaintiffs’ attorneys using Section 36(b) of the Investment Company Act of 1940, which grants the Security and Exchange Commission and fund shareholders the right to sue a mutual fund adviser for fees believed to be excessive.
Such Sec. 36(b) lawsuits have been known to take five years or longer to resolve, costing mutual fund advisers millions of dollars to defend each lawsuit, according to Rep. Emmer’s office.
Specifically, H.R. 699 would improve the ability of federal courts to curb abusive lawsuits against mutual fund advisers, explained Investment Company Institute President and CEO Eric Pan, who said Sec. 36(b) lawsuits “waste adviser resources without benefit to investors as evidenced by the fact that no suit brought since Sec. 36(b) was enacted has resulted in a judgement against a defendant adviser.”
The Investment Company Institute supports H.R. 699, which has been referred for consideration to both the U.S. House Financial Services Committee and the U.S. House Judiciary Committee.