Mutual Funds Cases

Mutual Funds Cases

This class action is for investors against Mutual Fund Companies in relation to frequent trading market timing and the imposition of management fees. We issued the case against Franklin Templeton Investments Corp. in relation to Templeton Funds and are collecting data and speaking to investors in other mutual funds, including GF Funds Inc., AIC Limited, CI Mutual Funds Inc. (now CI Investments Inc.), I.G. Investment Management, Ltd.

Please note, if you wish to register without reading all of the imformation below, simply use the form on the bottom of this page or contact us by our email address at hotz@sympatico.ca.

Significant harm may be incurred by a fund in which frequent trading market timing occurs. Any such harm would be borne by all investors in the fund.

In addition to dilution, market timing in a fund also may result in certain inefficiencies in that fund.

Those inefficiencies, which will vary depending upon the particular fund, may involve increased transaction costs and disruption of a fund's portfolio management strategy, including the maintenance of cash or cash equivalents and/or monetization of investments to meet redemption requirements, and may impair a fund's long-term performance.

The frequent trading market timing that took place resulted in:

(a) dilution of the value of other security holders' investments in the fund;

(b) increased brokerage transaction costs;

(c) inefficient management of a fund caused by maintaining cash or cash equivalents and/or monetization of investments to meet redemption requirements; and

(d) disruptions to the portfolio manager's investment strategy.

The fund's long-term performance was impaired, and that the market timer enjoyed gains that were significantly higher than those earned by the longer terms investors in that fund for the same period.

The case involves the activities arising as a result of frequent trading market timers, and management fees, and the acts and ommissions of the fund manager, which were to the detriment of the investors in the fund.

The case is independent of any settlement agreement between the OSC and Franklin Templeton and AGF Funds Inc., AIC Limited, CI Mutual Funds Inc. (now CI Investments Inc.), I.G. Investment Management, Ltd.

If you are an investor in Templeton Funds and/or GF Funds Inc., AIC Limited, CI Mutual Funds Inc. (now CI Investments Inc.), I.G. Investment Management, Ltd. or any of the Funds where frequent trading market timing has taken place, please use the form on the bottom of the page to register or contact us directly.

Duties and Obligations of the Fund Manager which were breached

The defendant's fund manager is subject to overriding obligations under Ontario Securities law to act in the best interests of the Franklin Templeton Fund. This includes taking reasonable steps to protect the fund from harm that may be caused by frequent trading market timing activity.

In particular, pursuant to section 116. (1) of the Securities Act, every person or company responsible for the management of a mutual fund shall exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the mutual fund, and in connection therewith shall exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

The OSC maintains that it is the fund manager's responsibility to put in place policies, procedures and other mechanisms to monitor trading that could be disruptive or harmful to the funds and to take reasonable steps to protect the funds from harm. Mutual fund managers have a duty to act in the best interests of their funds and the investors who have invested their money in those funds. The OSC makes the statement that “It is critical that managers fulfill that duty.”

We allege in this case that the payments made by the defendant should equate to the profits realized by the market timers and that there should be an accounting of all profits received by the defendant directly or indirectly related to the profits earned by market timers and management fees.

There must also be a tracing of the profits from inappropriate trading and frequent trading market timing transactions. To secure reimbursement for the affected investors of the amounts lost as a result of the market timers' activities, Franklin Templeton should be required to disgorge these amounts to the investors following the result of an equitable tracing.

The market timing that was the focus of the OSC probe involved short-term trading, the rapid trading in and out of mutual fund securities which is intended to take advantage of short-term discrepancies between the stale value of securities within the fund's portfolio and the current market values of those securities.

Stale values can occur in mutual fund portfolios when the prices of securities upon which a fund's price is based do not take account of the most recently available market information. This is most common in mutual funds whose portfolios have a material component of foreign securities traded on markets which closed many hours before the close of North American markets.

As a result of the time differences, the closing market price of the foreign equities used for the purpose of calculating the NAV (net asset value) of the fund may be stale. Consequently, the NAV of the fund and its NAV per security calculated on the basis of that closing market price may be stale. Further, as there is a strong correlation between price movements of equities on North American markets on one day and price movements of equities on foreign markets on the following trading day, if North American markets rally after the foreign markets have closed for the day, it is likely that the price of foreign securities will track the North American markets and rise on the following trading day.

A market timer will attempt to take advantage of this information lag by trading in anticipation of these price movements. The market timer will purchase mutual fund securities at a NAV that reflects the stale price of the foreign securities and then sell the fund securities shortly thereafter, at a time when it expects foreign prices to have risen, causing the fund's NAV to rise accordingly.

OSC Panel Approves $49.1 Million Settlement With Franklin Templeton

Toronto – A panel of Commissioners of the Ontario Securities Commission (OSC) approved a settlement agreement today that will result in $49.1 million being distributed to mutual fund investors who suffered harm from market timing activities in certain funds managed by Franklin Templeton Investment Corp. The settlement agreement was reached earlier this week by OSC staff and Franklin Templeton.

The agreement said that the conduct of the fund manager - in failing to protect fully the best interests of the relevant funds - was contrary to the public interest.

Facts and Terms of Settlement between OSC and Franklin Templeton

In the period February 1999 to February 2003:

the total profit realized in Franklin Templeton Funds by the market timing traders was approximately $120.8 million (not all of the profit realized by the Market Timing Traders was from frequent trading market timing transactions, and the profit realized by the Market Timing Traders does not equate to harm to other investors in the Franklin Templeton Funds);

the market timing traders achieved a return on their overall investment in the relevant funds that was significantly higher than the return that long-term investors would have achieved on their investments in the relevant funds in the same period;

in connection with the trading by the market timing traders, Franklin Templeton charged management fees to the relevant funds of approximately $4.6 million (net of trailer fees paid to Canadian investment dealers and other expenses, Franklin Templeton earned approximately $1.5 million on those management fees); and

no fees were charged by Franklin Templeton to the market timing traders.

Franklin Templeton agrees that, as a term of settlement, it will make a payment in the amount of $49.1 million to be distributed to affected investors. Franklin Templeton will be responsible for all costs of implementing the distribution of the funds according to a distribution plan prepared by an independent consultant and approved by the OSC.

The Franklin Templeton settlement agreement brings to an end the year-long probe by the OSC into trading practices in the mutual fund industry. In related settlement agreements approved December 16, 2004, four other mutual fund managers agreed to make payments to investors who suffered harm from market timing activities. The total of funds to be returned to investors as a result of the probe is $205.6 million.

OSC Mutual Fund Probe Settlement Payments to Harmed Investors
CI Mutual Funds Inc. AGF Funds Inc. I.G. Investment Management, Ltd. AIC Limited Franklin Templeton	$49.3 million $29.2 million $19.2 million $58.8 million $49.1 million
Total	$205.6 million

OSC Approves Distribution Plans for $205.6 Million Fund Probe Settlement

TORONTO - The Ontario Securities Commission (OSC) today announced it has approved the distribution plans that will see five Canadian mutual fund companies disburse $205.6 million to investors. The fund companies agreed to pay this amount after settlements were entered into with the Commission in December 2004 and March 2005. The companies are AGF Funds Inc., AIC Limited, CI Mutual Funds Inc. (now CI Investments Inc.), I.G. Investment Management, Ltd., and Franklin Templeton Investment Corp. The plans are to be implemented before the end of September of this year.

If you or someone you know has suffered harm as a result of being an investor in Templeton Funds, or any of AGF Funds Inc., AIC Limited, CI Mutual Funds Inc. (now CI Investments Inc.), I.G. Investment Management, Ltd., then please contact us directly or fill in the form.