Hartford prevails in lawsuit alleging it charged excessive fund fees

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By Jonathan Stempel

<span class="articleLocation”>A federal judge in New Jersey has dismissed a
long-running lawsuit accusing Hartford Financial Services Group
Inc’s investment management unit of overcharging
investors in six mutual funds, following a rare trial.

U.S. District Judge Renee Bumb in Camden said investors
failed to show that Hartford and its subadvisers did not do
enough work to justify the fees charged, thereby violating
federal laws governing mutual funds.

“Plaintiffs have not carried the burden of showing that the
nature of the services indicates the fees were so
disproportionate that they could not have been negotiated at
arm’s-length,” Bumb wrote in her 70-page decision.

Daniel Sweetser, a lawyer for investors who first brought
the case in 2011, said in a phone interview: “We’re obviously
disappointed, and will be filing an appeal.”

Hartford spokesman Tom Hambrick said the company is pleased
with the decision, which followed a non-jury trial.

The lawsuit has been closely watched in the fund industry.

It is one of a handful accusing fund companies of delegating
fund management to subadvisers, and charging excessive
additional fees for providing minimal additional services.

Investors in Hartford’s Balanced, Capital Appreciation,
Floating Rate, Growth Opportunities, Healthcare and Inflation
Plus funds said the company’s fees were too high, including on
funds with large asset bases.

In one example, they said Growth Opportunities, which
typically had around $2 billion of assets between 2010 and 2013,
charged a management fee two-and-a-half times larger than
Vanguard’s similar Morgan Growth Fund, court papers show.

Such fees caused Hartford funds to underperform more peers
than they otherwise would have, the plaintiffs alleged.

Hartford countered that its fee structures were acceptable,
citing data from Lipper, a fund research unit of Thomson Reuters
Corp. Bumb said Lipper’s data were reliable.

The decision came six months after another New Jersey judge
ruled against investors who accused Paris-based AXA SA
of charging excessive fees on variable annuity products.

Both cases involved alleged violations of Section 36(b) of
the Investment Company Act of 1940, which imposes a fiduciary
duty on fund advisers of registered investment companies with
regard to fees charged to investors.

“It’s an important law that protects the nest eggs and
college accounts and retirement accounts,” Sweetser said. “People need protection from outrageous and excessive fees, and
we will continue to fight a fight that needs to be fought.”

The case is Kasilag v Hartford Investment Financial Services
LLC, U.S. District Court, District of New Jersey, No. 11-01083.

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