Fiduciary Management, Inc. Shareholder Derivative Lawsuit

The Wayne County Employees' Retirement System, a shareholder in the FMI Large Cap Fund (the "Fund"), has filed this derivative lawsuit alleging that the Board of Fiduciary Management, Inc. extracted higher investment advisory fees from the captive fund than from arm's length institutional clients, even where the advisory services provided to those arm's length clients were substantially similar and in some cases identical to those FMI provided the fund.

This shareholder derivative suit has been brought for the benefit of the Fund, of which the Wayne County Employee's Retirement System has held shares since May of 2013. The defendant, Fiduciary Management, Inc. is an SEC-registered investment advisor located in Milwaukee, Wisconsin. FMI provides investment advisory services to the Fund, to other so-called "captive" funds in the FMI Fund Complex and also to non-captive arms's-length clients. The advisory services FMI provides to the fund are performed pursuant to an Investment Advisory Agreement setting for the type of services to be provided and the fess the Fund must pay for them. 

The plaintiff in this case is alleging that FMI has been extracting higher investment advisory fees from the Fund than from its arm's-length institutional clients, even wher the individual advisory services being provided tp those clients have been substantially similar and in some cases identical to those it is providing the Fund. The complaint aruges that FMI has not been charging the Fund in relation to the economies of scale it achieves by virtue of advising multiple clients, stating that the work required to operate a mutual fund does not increase proportionately with the assets under management. FMI, it is asserted, as not shared the benefits of the economies of scale it realizes by virtue of serving a diverse client base.

It is also alleged that the Board of Directors of the Fund, highly intertwined with the investment advisory arm of FMI, essentially rubber-stamped the advisory fees proposed by FMI, despite the existence of significant evidence calling into question such a decision. There was no indication whatsoever that the Board took any action to either reject or alter FMI's proposed fees. Arm's-length institutional clients of FMI secured superior rates as well as services from FMI through formalized negotiations, something the Fund's Directors did not undertake to accomplish, thereby harming the Fund.

The Board is accused of breaching its fiduciary duty by failing to seek and review comprehensive data and analyses regarding the fee structures proposed by FMI, failing to seek proposals from other investment advisors and by relying solely on information prepared by FMI itself which was designed to support FMI's fee demands. The Board also failed to consider the advisory fees charged by FMI to arm's-length institutional clients, FMI's economies of scale and the profitability of the Fund to FMI. 

Based on the foregoing, the complaint seeks a judgment declaring violations of Section 36(b) of the Investment Company Act, permanent enjoinder of those violations, compensatory damages including repayment to the Fund of excessive fees paid from one year prior to the commencement of the action through the date of trial as well as lost investment returns and interest. Recission of the Investment Advisory Agreement and resonable fees and costs of the lawsuit are also being requested. 

A shareholder derivative lawsuit is one that is brought by a corporation's shareholder when a corporation in fact has a valid cause of action against a third-party (often a company insider or officer), but declines to pursue it. Such lawsuits are an unusual twist on conventional corporate law principles, under which management is typically charged with bringing legal action on behalf of the corporate entity. When management does not proceed in such a manner, a shareholder may be able to assume that role on behalf of the company and prosecute the litigation, provided that certain procedural hurdles are cleared. Should a shareholder prevail in type of suit, the resulting proceeds are paid to the corporation itself, not the individual who initiated the action.

 

Article Type: Lawsuit
Topic: Investments

Most Recent Case Event

Fiduciary Management, Inc. Shareholder Derivative Lawsuit Complaint

September 30, 2015

The complaint for this lawsuit alleges that the Board of Fiduciary Management, Inc. extracted higher investment advisory fees from captive funds than from arm's length institutional clients, even where the advisory services provided to those arm's length clients were substantially similar and in some cases identical.

fmi_excessive_fees_class_action_lawsuit.pdf

Case Event History

Fiduciary Management, Inc. Shareholder Derivative Lawsuit Complaint

September 30, 2015

The complaint for this lawsuit alleges that the Board of Fiduciary Management, Inc. extracted higher investment advisory fees from captive funds than from arm's length institutional clients, even where the advisory services provided to those arm's length clients were substantially similar and in some cases identical.

fmi_excessive_fees_class_action_lawsuit.pdf
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