Securities Lawsuit Against BlackRock Accuses Firm of Charging Excessive Sub-Advisor Fees

BlackRock Inc. (BLK) wants a judge to dismiss a securities lawsuit accusing the money manager of charging exorbitant fees and breaching its fiduciary duties. Lawyers for the firm argued that the claims have no merit in the U.S. District Court in Trenton, New Jersey.

The investor plaintiffs, including a Florida investment adviser who won the lottery, contend that BlackRock’s subsidiaries collected excessive fees for services provided to Equity Dividend Fund (MDDVX), worth almost $30 billion, and their Global Allocation Fund, (MDLOX), worth close to $59 billion. They say that they lost millions of dollars because of excessive fees.

However, reports InvestmentNews, according to one of the lawyers representing BlackRock, the complaint does not properly acknowledge the fund’s size or allege facts adequate enough to plausibly demonstrate that the fees are unreasonable, especially considering the services that were provided.

The investors blame the board of directors of the funds for failing to behave “conscientiously” when approving “markups” and fees. They say that this violates U.S. the Investment Company Act of 1940 as it pertains to duty breaches.

This securities case is one of several that are pending against different firms over sub-advisor fees. Defendants in the other cases include J.P. Morgan Investment Management Inc. (JPM), SEI Investments, and AXA Equitable Life Insurance Co.

The lawsuits claim that subsidiaries of the fund companies get to keep too much of the revenue made by their funds. To date, the courts have yet to dismiss any of these cases.

BlackRock fights lawsuit claiming ‘excessive fees’, Investment News, August 14, 2014

Investment Company Act of 1940 (PDF)

Securities Lawsuits Accuse BlackRock Of Charging Exorbitant Investment Advisor Fees, Institutional Investor Securities Blog, May 8, 2014

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