Class-action Lawsuit Against a Mutual Fund

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Moon and stars
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Class-action Lawsuit Against a Mutual Fund

Post by Moon and stars »

A law firm recently issued a shareholder alert about a potential class-action lawsuit against the mutual fund DSPIX (BNY Mellon Institutional S&P 500 Stock Index Fund). The law firm is investigating the actions of the officers and board of directors of DSPIX. According to the shareholder alert, the investigation involves “possible breaches of fiduciary duties and other violations of law, including securities claims on behalf of shareholders.”

DH and I own a substantial number of shares of DSPIX. DSPIX’s expense ratio is 0.20%. We bought the shares years ago—before Bogleheads taught us the importance of low expense ratios. The 10-year performance of DSPIX is 98.5% of that of VFIAX (Vanguard 500 Index Admiral) with its 0.04% expense ratio. Selling our DSOIX shares would result in a significant income tax bill for capital gains.

I have not personally observed any suspicious activity on the part of the DSPIX. However, an internet search shows there has been at least one previous lawsuit against the parent of DSPIX for breaches of fiduciary duties.

The law firm wants current DSPIX shareholders to contact them, presumably to participate in a class-action lawsuit. The law firm says their representation is contingency-based with no out-of-pocket costs.

Have any Bogleheads contacted a law firm about potential participation in a class-action lawsuit against a mutual fund? If so, what are the pros and cons of doing so?
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nedsaid
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Re: Class-action Lawsuit Against a Mutual Fund

Post by nedsaid »

Yes, I have probably three times. One involved a mutual fund and a couple others involved stocks that I owned. There is what amounts to ambulance chasing in the investment business, such lawsuits are not uncommon. Usually you fill out some paperwork, mail it in, and at some point you might receive a check. You won't get rich off this process, you might get a check for $50 or $60 and that is usually about it.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by MarkerFM »

Moon and stars wrote: Sun Jul 25, 2021 3:17 pm A law firm recently issued a shareholder alert about a potential class-action lawsuit against the mutual fund DSPIX (BNY Mellon Institutional S&P 500 Stock Index Fund). The law firm is investigating the actions of the officers and board of directors of DSPIX. According to the shareholder alert, the investigation involves “possible breaches of fiduciary duties and other violations of law, including securities claims on behalf of shareholders.”

DH and I own a substantial number of shares of DSPIX. DSPIX’s expense ratio is 0.20%. We bought the shares years ago—before Bogleheads taught us the importance of low expense ratios. The 10-year performance of DSPIX is 98.5% of that of VFIAX (Vanguard 500 Index Admiral) with its 0.04% expense ratio. Selling our DSOIX shares would result in a significant income tax bill for capital gains.

I have not personally observed any suspicious activity on the part of the DSPIX. However, an internet search shows there has been at least one previous lawsuit against the parent of DSPIX for breaches of fiduciary duties.

The law firm wants current DSPIX shareholders to contact them, presumably to participate in a class-action lawsuit. The law firm says their representation is contingency-based with no out-of-pocket costs.

Have any Bogleheads contacted a law firm about potential participation in a class-action lawsuit against a mutual fund? If so, what are the pros and cons of doing so?
No matter what you do, don't spend a minute worrying about whether you should sell this fund because of this claimed malfeasance. These nuisance suits are just a way for vulture lawyers to walk away with a fee. Most of the time, the plaintiffs get a fraction of the total settlement.
TropikThunder
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Re: Class-action Lawsuit Against a Mutual Fund

Post by TropikThunder »

Moon and stars wrote: Sun Jul 25, 2021 3:17 pm According to the shareholder alert, the investigation involves “possible breaches of fiduciary duties and other violations of law, including securities claims on behalf of shareholders.”
What kinds of allegations are being made? I don’t see how a fund manager has much room to monkey around with an S&P500 fund. Especially since your long-term results compared to Vanguard’s version differ only by the ER.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by JAZZISCOOL »

FWIW:

At quick glance, I do see the ER of this fund is 20 basis points which is high without a doubt (multiple of what other firms like Schwab, Vanguard, etc. would charge for a similar broad market US index fund). Therefore, performance has been impacted vs. the benchmark (per Schwab performance report on this fund).

BNY Mellon Institutional S&P 500 Stock Index Fund Class I DSPIX

Net Expense Ratio
0.20%

Source: Schwab

For comparison, Vanguard Total Stock Market Index Fund Admiral Shares VTSAX charges 4 basis points.
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quantAndHold
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Re: Class-action Lawsuit Against a Mutual Fund

Post by quantAndHold »

This hasn't even gotten to the point where they're asking for lead plaintiffs for the class action. They're just launching an "investigation." Other than the fact that the expense ratio is about 15 bp too high, I can't imagine what they're on about. They'll let you know eventually. For now, this seems ignorable.
02nz
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Re: Class-action Lawsuit Against a Mutual Fund

Post by 02nz »

Those lawyers should really go after this fund: https://www.guggenheiminvestments.com/m ... spx-sp-500

1.68% expense ratio :shock: :shock: :shock: :shock: :shock: for a fund that "seeks to provide investment returns that match, before fees and expenses, the daily performance of the S&P 500® Index." Yet somehow they have $150 M in assets!
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Re: Class-action Lawsuit Against a Mutual Fund

Post by JAZZISCOOL »

02nz wrote: Sun Jul 25, 2021 5:27 pm Those lawyers should really go after this fund: https://www.guggenheiminvestments.com/m ... spx-sp-500

1.68% expense ratio :shock: :shock: :shock: :shock: :shock: for a fund that "seeks to provide investment returns that match, before fees and expenses, the daily performance of the S&P 500® Index." Yet somehow they have $150 M in assets!
:shock: :(
prd1982
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Re: Class-action Lawsuit Against a Mutual Fund

Post by prd1982 »

TRPrice’s SP500 fund has an expense ratio of .19%. But I don’t see that it is illegal. But this is a boutique law firm specializing in this type of activity.
student
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Re: Class-action Lawsuit Against a Mutual Fund

Post by student »

JAZZISCOOL wrote: Sun Jul 25, 2021 5:11 pm FWIW:

At quick glance, I do see the ER of this fund is 20 basis points which is high without a doubt (multiple of what other firms like Schwab, Vanguard, etc. would charge for a similar broad market US index fund). Therefore, performance has been impacted vs. the benchmark (per Schwab performance report on this fund).

BNY Mellon Institutional S&P 500 Stock Index Fund Class I DSPIX

Net Expense Ratio
0.20%

Source: Schwab

For comparison, Vanguard Total Stock Market Index Fund Admiral Shares VTSAX charges 4 basis points.
So it is high but why is it this an issue with respect to the law. It may not have enough assets in this fund for the economies of scale. According to viewtopic.php?t=224576 Vanguard has ER 0.5% in 1979 and 0.18% in 2010 for investor shares.
Last edited by student on Sun Jul 25, 2021 6:23 pm, edited 1 time in total.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by oldcomputerguy »

02nz wrote: Sun Jul 25, 2021 5:27 pm Those lawyers should really go after this fund: https://www.guggenheiminvestments.com/m ... spx-sp-500

1.68% expense ratio :shock: :shock: :shock: :shock: :shock: for a fund that "seeks to provide investment returns that match, before fees and expenses, the daily performance of the S&P 500® Index." Yet somehow they have $150 M in assets!
And part of that 1.68% is a 12b-1 fee (0.25%]. Add on to that a 277% turnover rate, and you get a fund that I (for one) will be staying away from.
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talzara
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Re: Class-action Lawsuit Against a Mutual Fund

Post by talzara »

quantAndHold wrote: Sun Jul 25, 2021 5:21 pm This hasn't even gotten to the point where they're asking for lead plaintiffs for the class action. They're just launching an "investigation." Other than the fact that the expense ratio is about 15 bp too high, I can't imagine what they're on about. They'll let you know eventually. For now, this seems ignorable.
They are not launching an investigation. This is a spam press release.

Some law firms chase corporate actions. Whether it's a merger, spin-off, special dividend, preferred share issuance, or any other kind of capital transaction, the law firm is always "investigating." The only thing unusual about this one is that it is a mutual fund instead of a single stock.

Search for the phrase "Barr Law Group is investigating." This law firm must be conducting at least 100 investigations by now, and it's only three lawyers.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by quantAndHold »

talzara wrote: Sun Jul 25, 2021 6:18 pm
quantAndHold wrote: Sun Jul 25, 2021 5:21 pm This hasn't even gotten to the point where they're asking for lead plaintiffs for the class action. They're just launching an "investigation." Other than the fact that the expense ratio is about 15 bp too high, I can't imagine what they're on about. They'll let you know eventually. For now, this seems ignorable.
They are not launching an investigation. This is a spam press release.

Some law firms chase corporate actions. Whether it's a merger, spin-off, special dividend, preferred share issuance, or any other kind of capital transaction, the law firm is always "investigating." The only thing unusual about this one is that it is a mutual fund instead of a single stock.

Search for the phrase "Barr Law Group is investigating." This law firm must be conducting at least 100 investigations by now, and it's only three lawyers.
Indeed, the only thing interesting about this is that it’s about a mutual fund. I think every stock I’ve ever owned that’s gone down in price has generated at least one shareholder lawsuit. I still get one or two of these a week, and I haven’t owned any individual stocks in a few years. Most of the time I only vaguely remember the name of the company.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by nisiprius »

It sounds a little weird to me.
MarkerFM wrote: Sun Jul 25, 2021 4:54 pm...No matter what you do, don't spend a minute worrying about whether you should sell this fund because of this claimed malfeasance...
I agree completely.

As for joining the lawsuit, have you been doing a slow burn all along? What exactly are the bad things that BNY Mellon Bank is said to have been doing? I might try to find out, by contacting the firm. Or I might just shrug and ignore it. But my own peculiar eccentric ethics would say that I shouldn't join the suit unless, after hearing what the law firm had to say, I honestly felt that I wuz robbed--and of important money.

That is, I wouldn't (personally) join a class action lawsuit just that it is like a free lottery ticket with a two-figure jackpot. I would want to feel that us plaintiffs were in the right.

In principle, as a Boglehead, it's easy enough to say DSPIX ought to be doing better, shame on DSPIX--but it's hard to see that there has been much harm done. And, although this doesn't justify or excuse it--it's easy to find competitors' S&P 500 index funds that have been worse. Below, the QS S&P 500 Index Fund (yellow), and the Rydex S&P 500 Fund (red) which I believe to be, as far as I know, the worst of all S&P 500 funds.

Source

Image

This is not at all like the situation with (say) the Oppenheimer (now Invesco) Core Bond Fund. I haven't been following the lawsuit news, but that's a case where the fund shareholders were seriously harmed by the fund--offered as a core bond fund in 401(k) plans--and the lawsuits were totally justified.

Source

Image
Last edited by nisiprius on Mon Jul 26, 2021 8:49 am, edited 1 time in total.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by bberris »

Didn't Stalin say , "Show me a mutual fund, I'll find the tort."
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Re: Class-action Lawsuit Against a Mutual Fund

Post by nisiprius »

I don't want to encourage Moon and stars to do anything, I definitely don't want to egg them on to contact the firm, but if they do and get a description of what BNY Mellon is alleged to be doing I hope they will post it. I am certainly not a lawyer but my vague impression is that courts are not enthusiastic about ordering jackpot-sized payouts just because of a technical violation of some legal detail if it hasn't cost real people important money. Who wuz robbed by BNY Mellon exactly, and by how many dollars? If they just broke a rule, whose job is it to Do Something About It, the courts or the SEC?
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Re: Class-action Lawsuit Against a Mutual Fund

Post by BolderBoy »

nedsaid wrote: Sun Jul 25, 2021 3:40 pm Yes, I have probably three times. One involved a mutual fund and a couple others involved stocks that I owned. There is what amounts to ambulance chasing in the investment business, such lawsuits are not uncommon. Usually you fill out some paperwork, mail it in, and at some point you might receive a check. You won't get rich off this process, you might get a check for $50 or $60 and that is usually about it.
This was my exact experience outcome as well.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by afan »

I have "won" several of these lawsuits. Most of the time, all I get is a postcard from the happy lawyers telling me that they extracted some money but that there was nothing left by the time they took their cut.
There is one percolating right now where they claim I will get $50. I will believe it when the check clears.
Did the bank do anything for which it should be sued? I have no idea in this case. But it is definitely a scam used by lawyers to make big money while the claimed victims get nothing.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by celia »

Even the 0.20% Expense Ratio is nothing to worry about. (That is subtracted from the yearly growth, thus making this fund ‘only’ grow 98.5% of what Vanguard’s equivalent grew.) A lot of a fund’s expenses are ‘fixed’ (buildings, employee benefits, utilities), so a smaller fund has a higher ER since there are fewer shares/shareholders to share in the expenses.

Ignore the lawsuit.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by BH_RedRan »

"Pot calling the kettle black" regarding lawyers suing about exorbitant fees for little return to the end customer.
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Moon and stars
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Re: Class-action Lawsuit Against a Mutual Fund

Post by Moon and stars »

Thanks to all the Bogleheads who responded to my question. Based on your input, DH and I have decided not to contact the law firm that issued the press release -- and to keep our DSPIX shares.

The three reasons we don’t want to participate in any potential class-action lawsuit are:

1. The law firm's business model. The plethora of fraud investigations that the three-person law firm is involved with suggests an “ambulance chasing” business model.

2. No or very minimal personal harm to DH and me. DSPIX ‘s performance is similar to competitor’s S&P 500 index funds, accounting for differences in expense ratio. While DSPIX’s expense ratio of 20 basis points is higher than some competitor S&P 500 index funds, DSPIX’s operating expenses could logically be expected to be higher because of the small size of the fund.

3. Privacy. I’m uncomfortable sharing any of our financial information with a law firm in which I have shaky confidence in their business model.

As a long-time lurker on the Boglehead site, I want to thank all the contributors over the years who gave me the knowledge and confidence to manage our own investment portfolio.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by Northern Flicker »

The primary action I would recommend is ensuring that you are not reinvesting dividends in this fund, eg that auto reinvest is turned off.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by VanGar+Goyle »

quantAndHold wrote: Sun Jul 25, 2021 5:21 pm This hasn't even gotten to the point where they're asking for lead plaintiffs for the class action. They're just launching an "investigation." Other than the fact that the expense ratio is about 15 bp too high, I can't imagine what they're on about. They'll let you know eventually. For now, this seems ignorable.
I have won many class action lawsuits, winning $2-$150 dollars, and that took many more years than promised.
I had moved on, and given up on it
Except for the lawyers, Only the lead plaintiffs get a significant return.
The worst award was a 10% off coupon for an airline trip,
usable only on full-fare prices, so would not have saved me any money.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by barnaclebob »

MarkerFM wrote: Sun Jul 25, 2021 4:54 pm These nuisance suits are just a way for vulture lawyers to walk away with a fee. Most of the time, the plaintiffs get a fraction of the total settlement.
Without the vulture lawyers looking for class action suits, companies would have even less incentive to do shady things. Better the lawyers get rich than the shady companies. But if these suits are just trying to get a settlement to make the lawsuit go away when no actual wrongdoing has been done then yeah that's no good.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by bberris »

barnaclebob wrote: Tue Jul 27, 2021 9:51 am
MarkerFM wrote: Sun Jul 25, 2021 4:54 pm These nuisance suits are just a way for vulture lawyers to walk away with a fee. Most of the time, the plaintiffs get a fraction of the total settlement.
Without the vulture lawyers looking for class action suits, companies would have even less incentive to do shady things. Better the lawyers get rich than the shady companies. But if these suits are just trying to get a settlement to make the lawsuit go away when no actual wrongdoing has been done then yeah that's no good.
You seem to be assuming the shady operators pay these settlements. Shareholders and insurance companies pay them. So in the end it's all on shareholders.
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Re: Class-action Lawsuit Against a Mutual Fund

Post by Northern Flicker »

And those shareholders elect a board that can hold the CEO accountable for delivering shareholder value. If class action suits can make shady activities a negative value proposition, that makes them counterproductive to the CEO for delivering shareholder value.
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