A federal judge has dismissed a lawsuit that accused Fidelity of letting certain "retail class" investors in its Fidelity Government Money Market Fund lose millions of dollars a year to high expenses when they're eligible for lower-cost "premium" shares.
The complaint alleged Fidelity and fund officials let some customers holding the money market mutual fund's retail share class (SPAXX) "needlessly incur higher expenses" even when eligible for its lower-expense but otherwise identical premium share class (FZCXX).
U.S. District Judge Margaret M. Garnett ordered the case dismissed Wednesday, writing in her opinion that the investor plaintiffs failed to state claims for breach of fiduciary duty and related violations, including not showing Fidelity acted with "gross negligence."
While the plaintiffs contended Fidelity acted unreasonably by not automatically converting accounts to the less expensive premium shares when customers met the investment minimums, Garnett wrote, "there is no basis that the absence of an auto-conversion or similar mechanism lies outside the bounds of reason."
The judge noted the plaintiffs didn't dispute their ability to readily convert the shares to premium class themselves once their balances met the minimum. The plaintiffs seek to fault the defendants for not taking action the investors could have taken on their own, she wrote, adding that the economic consequences of taking or not taking such actions were fully disclosed to them.
The fund's retail and premium shares are identical except for the minimum required to initially invest and the operating expenses charged to shareholders, the suit contended. Retail shares have no investment minimum and a gross expense ratio of 0.42%. Premium shares have a $100,000 investment minimum and a gross expense ratio of 0.36%.
The action sought relief for retail class shareholders who met the investment minimum for premium class shares but were charged the higher expenses for retail class shares.
A lawyer for the plaintiffs didn't immediately respond to an email seeking comment.
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