BlackRock faces class action over excessive fees

Posted on: May 30th, 2014 by Steve Larson
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FeeBlackRock Inc. is facing a potential class-action lawsuit by investors, including a lottery-winning Florida adviser, who assert the firm has breached its fiduciary obligations by charging exorbitant fees.  In the fourth legal complaint this year asserting similar claims, Florida investment adviser Timothy C. Davidson claims the world’s largest money manager keeps too much of the value generated by one of its funds even as it gets larger and cheaper to maintain.

“Defendants have breached their fiduciary duty … by charging and receiving investment advisory fees from the fund that are so disproportionately large that they bear no reasonable relationship to the services rendered,” the complaint states. “The fund’s investment advisory fee arrangement has enabled [BlackRock Advisors] to retain for itself the vast majority of the benefits of economies of scale resulting from increases in the fund’s assets under management during recent years, without appropriately sharing those benefits with the fund and its shareholders. In this regard, it is generally accepted in the mutual fund industry that it is not harder to manage a fund simply because it is bigger.”

The complaint also accuses the fund’s board of directors of “not acting conscientiously” in approving fees and “markups,” a breach of the obligations required by the Investment Company Act of 1940, which governs funds.

“The fund and its shareholders have sustained hundreds of millions of dollars in damages,” according to the complaint.

In the latest lawsuit, the fund in question is the BlackRock Global Allocation Fund. Mr. Davidson said a trust he helped form after buying a winning lottery ticket owned shares worth $1 million in the fund’s institutional share class (MALOX), according to the complaint filed in the U.S. District Court for the District of New Jersey in Trenton, N.J.

Altogether the fund manages about $60 billion.