After five years of litigation culminating in a 25-day trial, a New Jersey federal court yesterday granted AXA Equitable Life Insurance Co. and its wholly-owned subsidiary, AXA Equitable Funds Management Group, LLC (FMG LLC) a significant victory in ruling that the two companies (collectively AXA US) did not receive excessive compensation for managing and administering certain of its mutual funds.

“While it is quite unusual for cases of this type and magnitude to be tried in court to decision, AXA US strongly believed that the lawsuits were without merit and that we provide quality services to our clients,” commented Dave S. Hattem, senior executive director and general counsel of AXA Equitable. “We have consistently defended our business structure, our conduct and the conduct of EQ Advisors Trust’s (“EQAT”) independent trustees and are extremely pleased that the court thoughtfully applied the well-established law to our facts and found that the fees charged were fair and reasonable.”

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In a lengthy 159-page opinion, Judge Peter G. Sheridan detailed the court’s decision that plaintiffs had failed to meet the burden of proving their case. With respect to the primary allegations made by plaintiffs — that FMG LLC charged “exorbitant fees” while delegating “all of the services” to sub-advisers or a sub-administrator for a “nominal amount;” and that the EQAT Board was not impartial, careful or conscientious in approving the advisory and administrative services fees charged — the court found “that FMG continued to perform significant administrative and investment management duties, despite the fact that some were delegated to subs.

“The managerial role that FMG plays in coordinating with sub-advisers and sub-administrators is extensive…The duties performed by FMG are far more extensive than Plaintiffs’ contention that FMG delegated all of its work to the subs,” the court added. With respect to the role and conduct of the EQAT Board, the court found “that the Board’s makeup is sufficiently diverse and independent, and the procedures it followed demonstrate that the Board robustly reviewed FMG’s compensation.”

The Court’s decision vindicates FMG LLC’s “manager-of-managers” structure, whereby FMG LLC provides essential services to the funds and at its own expense and engages third-party service providers to provide certain limited investment and administrative services.

Steven M. Joenk, managing director of AXA Equitable and president and chief executive officer of FMG LLC, added that “our structure allows us to continue to offer shareholders a diverse menu of investment options. We applaud the court’s ruling and look forward to continuing to help our clients meet their financial goals.

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“We also appreciate the court’s recognition of the independence, care and diligence of the independent trustees who annually review the compensation received by FMG LLC.”

The AXA US case is the first Section 36(b) excessive case to go to trial since 2009 and is the first of the numerous cases that recently have been filed challenging the manager of managers structure.

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AXA US firmly believes that the rigorous and well-established processes that have been put in place with respect to the services provided, and the fees charged, to its mutual funds, as well as the Board’s conduct, factored heavily in the Court’s decision.

As noted by the Court, “In disputing the services that FMG and AXA perform, Plaintiffs simply point to contract provisions from the various agreements. However, to adopt Plaintiff’s position would ignore voluminous testimony of credible witnesses.”

The case is Mary Ann Sivolella v. AXA Equitable Life Insurance Company and AXA Equitable Funds Management Group, LLC and Sanford et al. v. AXA Equitable Funds Management Group, LLC (Civil Action No. 3:11-cv-04194 (D.N.J.).

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