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Portfolio > Mutual Funds

Canary Class Actions and Certification Issues

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BALTIMORE (–Charles J. Piven, a class action plaintiffs’ lawyer, has filed four class actions in courts across the country alleging improper trading practices by four mutual fund companies in connection with late trading of mutual fund shares by certain customers of the fund, including one or more hedge funds.

Mr. Piven’s complaints–one each for a state court in Colorado and Wisconsin: one for a federal court in California and another in New Jersey–define the plaintiff class as consisting of everyone who “purchased, redeemed, and/or held [shares] of any of the mutual funds referenced herein during the period that the conduct complained of occurred,” as he explained in a statement issued Sept. 8.

He has filed the Colorado action on behalf of participants in the funds managed by Janus Capital Management LLC; the Wisconsin action referencing funds managed by Strong Capital Management Inc.; the California action referencing funds managed by Bank of America Corp.; and the New Jersey action also referencing funds managed by both Janus and Strong as well as Bank One Investment Advisors Corp.

The complaint targets conduct that has become notorious since Elliott Spitzer, New York’s attorney general, announced his investigation and his office’s settlement with Canary Capital Partners LLC, Previous HedgeWorld Story. Mr. Piven’s complaint alleges that the conduct complained of occurred from May 3, 2001 through July 3, 2003.

No class has yet been certified in any of these actions, and Mr. Piven’s statement cautions class members that “until a class is certified, you are not represented unless you retain an attorney.” Mr. Piven declined Monday to comment beyond the prepared statement.

Professor/Activist Cautious About Class Certification

One authority on mutual funds, Mercer Bullard, a securities law professor at the University of Mississippi law school, University, Miss., when informed of Mr. Piven’s lawsuits, indicated Monday evening that class certification in this matter may prove very contentious.

He agreed with Mr. Piven that many participants in these funds have been harmed, and he added, “They have the shared characteristics necessary for a class.” But, he cautioned, “there are other hoops you have to jump through” to get certification, “and that may not be easy.” Furthermore, many investors will be better off bringing their own direct lawsuits rather than relying upon their inclusion as a class member.

He said that he believes that this scandal may result in increased regulation of both the hedge and mutual fund industries, although he considered that unfortunate because in neither case is such a response appropriate. “First of all, this isn’t a hedge fund issue, it’s a mutual fund issue. Second, what we need is more vigilant enforcement of existing rules. Stale pricing is widespread and pernicious. The SEC knew about it and did nothing.”

Mr. Bullard worked at the Securities and Exchange Commission from 1996 to 2000. When he left the SEC, he founded Fund Democracy, a nonprofit membership organization aimed at providing a voice for the interests of mutual fund shareholders, lobbying legislators and regulators on issues that affect those interests. In June 2001, his views on the issue of “stale pricing” were quoted and discussed in a HedgeWorld column, Previous HedgeWorld Story.

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