U.S. mutual fund trustees feel the heat of investor lawsuits

Tue Dec 27, 2016 11:33am EST
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By Ross Kerber

BOSTON (Reuters) - Before New York's famed 21 Club steakhouse drew attention in November for hosting Donald Trump, the wealthy U.S. president-elect, it quietly fed other public representatives: trustees of Paris-based AXA SA (AXAF.PA: Quote) investment funds.

The trustees - board members tasked with overseeing AXA funds - had events there and at other ritzy spots, legal records show. A 2011 holiday party at a Del Frisco's restaurant cost $25,775, a $1,000 average for each of roughly 25 people present.

"The wine was very good," a trustee recalled of one meal.

The trustees' dining experiences emerged in a federal case decided in August. Investors including a teacher and a retired police officer accused the firm of collecting excessive fees, a charge the firm denied.

U.S. District Judge Peter Sheridan sided with AXA in his 146-page decision, but he wrote the suit had prompted a "more scrupulous and rigorous" review of board expenses. One result was to reimburse investors for some of the meal costs.

In courts across the land, investors are subjecting mutual fund boards to greater scrutiny. Trustees, often paid hundreds of thousands of dollars a year, are under pressure to prove they have stood up for shareholders in an industry that has $16 trillion under management.

The lawsuits accuse fund boards of missteps such as failing to scrutinize fees or pass along to investors economies of scale as their funds grow with rising markets. The claims illuminate the long obscure role of fund trustees, sometimes known as directors.

Despite their compensation and influence, at many fund families these individuals rarely appear before investors and face few official qualification requirements. Many are current or retired executives, attorneys or academics, much the same as at large publicly traded companies.   Continued...

Logo of France's biggest insurer Axa is seen in front the company headquarter in Paris, France, August 4, 2016. REUTERS/Jacky Naegelen/File Photo