BALTIMORE (AP) — Four judges lined the bench yesterday at the first hearing on nearly 100 private lawsuits accusing six big mutual fund companies of widespread trading abuses potentially affecting millions of investors.
One of the judges, originally expected only to help Judge J. Frederick Motz and two other jurists hearing the cases, will likely have to handle some cases herself to ease the burden, Judge Motz said, as even more suits are expected to be added to the case.
Judge Motz began by underscoring the importance of the case to investors nationwide. He warned the lawyers, which made up the bulk of the 200 persons inside the courtroom here, that the bulk of any money recovered would go to investors who lost money — not them.
“No one should expect to get rich off of this case,” Judge Motz warned the lawyers.
The Judicial Panel on Multidistrict Litigation assigned the case to U.S. District Court in Baltimore in February. The panel picked Maryland because the lawsuits were spread across the country and said Maryland was a “district with the capacity and experience to steer this litigation on a prudent course.”
“This is now going to be sort of ground zero for the federal securities litigation involving the mutual fund fraud that has been in the news,” said Andrew Levy, a trial lawyer and adjunct professor at the University of Maryland School of Law who specializes in multidistrict litigation.
Yesterday, Judge Motz and Judges Catherine Blake, Andre Davis and Frederick Stamp discussed organizing the litigation. They scheduled deadlines and hearings on pretrial matters such as who will be the lead attorneys.
“They’re just sort of trying to, as they say, determine the shape and size and height of the table and when they’re going to open the door and when they’re going to close it,” said Henry Hopkins, chief legal counsel for Baltimore’s T. Rowe Price Group.
He attended yesterday’s hearing because T. Rowe Price has a case among the lawsuits, although it is not one of the big six defendants. They are Janus Capital Group Inc., Strong Capital Management Inc., Bank One Corp., Bank of America Corp., Putnam Investments and Alliance Capital Holdings.
About 95 million Americans have about $7 trillion invested in mutual funds.
The plaintiffs contend the fund managers gave preferential treatment to wealthy customers at the expense of ordinary investors. Fund managers reputedly allowed rich clients to book after-hours trades at prices already closed to most fund shareholders.
The investors also claim fund mangers allowed quick in-and-out investing known as market timing. Although market timing is not illegal, most funds prohibit it because it racks up expenses that hurt long-term shareholders.
Judge Blake set what she hoped would be a “reasonably fast schedule” for the case. She gave attorneys two weeks to negotiate who will be the lead attorneys in the huge multidistrict case. If the attorneys can’t agree, the court will decide after a May 3 hearing.
David Bershad, an attorney representing the Ohio Tuition Pension Plan, argued that the lead plaintiffs should be the ones with the largest financial interest. Mr. Bershad’s clients have hundreds of millions of dollars invested in the funds.
“In the interests of having a single structure, which I think is necessary to avoid undue duplications, I think that is the best of the possible standards,” Mr. Bershad said.
But other attorneys argued against that standard, saying they have claims that are not federal securities class-action claims.
The lawsuits include class-action cases, which were brought on behalf of purchasers or sellers who are individual investors, and derivative cases, which were brought by investors on behalf of the funds themselves to recover money.
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