Investigations

Bernstein Liebhard is pleased to announce that it has obtained a favorable decision from the United States Court of Appeals for the Second Circuit, on behalf of its client, Operating Local 649 Annuity Trust Fund (“Local 649”), in the case captioned Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt. LLC, 07-5125-cv (2d Cir. Feb. 16, 2010).  The decision is a victory for all shareholders as it strongly supports shareholder rights under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

The case is a class action brought on behalf of all investors who purchased, redeemed, or held shares in the 105 mutual funds that are part of the Smith Barney family of funds (the “Funds”) between September 11, 2000 and May 30, 2005.  Lead Plaintiff Local 649 alleged that Smith Barney Asset Management LLC (“Smith Barney”) issued allegedly false and misleading statements and made omissions of material fact relating to a contract for transfer agent services.  Specifically, Lead Plaintiff Local 649 alleged that Smith Barney negotiated a contract for transfer agent services that saddled the Funds with excessive, misleadingly disclosed fees, a significant portion of which were, in essence, kicked back to a Smith Barney affiliate. 

Rejecting Smith Barney’s arguments about the alleged non-materiality of their statements, the Second Circuit stated, among other things, that “[t]he veracity of a statement or omission is measured not by its literal truth, but by its ability to accurately inform rather than mislead prospective buyers.”

The Second Circuit also held that Local 649 had adequately alleged loss causation, stating that “the defendants’ misrepresentations proximately resulted in the regular deduction of identifiable amounts that would not have been deducted had defendants conformed their conduct to what the law required.  The…losses were real ones because the deductions used to fund the transfer agent ‘fees’ diminished for Local 649 (and other shareholders) money under management and, as a result, negatively and predictably impacted returns.”
 
A copy of the Court’s decision can be found here.

If you have any questions about this matter please contact U. Seth Ottensoser or Joseph R. Seidman, Jr. at (877) 779-1414.