A series of legal challenges to the mutual fund industry's system of independent directors has suffered another setback.

A federal court judge last month refused to order Credit Suisse Asset Management to repay fees it received for managing the closed-end Brazilian Equity Fund because of the alleged lack of independence of the fund's directors. U.S. District Court Judge Robert Sweet said in a 12-page decision dated March 11 that the plaintiff in the case, Robert Strougo, could not recover damages simply by alleging that directors were not independent. Instead, Strougo must prove that the fees which the funds paid to Credit Suisse were excessive, Sweet said.

Directors approve the fees which mutual funds pay to their advisory firms. Strougo contended that the fund directors, because of their alleged lack of independence, violated the federal law which limits the fees a fund can pay an adviser.

"Strougo has not alleged that the amount of compensation paid to [Credit Suisse] was unreasonably disproportionate or even inappropriate," Sweet said. He gave Strougo until April 1 to revise his complaint and refile it.

Court records on file with the federal court in New York did not indicate that Strougo had refiled the case as of press time. Joel Feffer, an attorney for Strougo, declined to comment.

The judge's decision marks the third of five similar cases in which a mutual fund company has prevailed in a dispute over directors and their alleged loss of independence because of the pay they receive. In February, a federal court judge dismissed claims against BlackRock Financial Management on allegations similar to the Credit Suisse case. T. Rowe Price Associates prevailed in a similar suit in January. In both instances, the shareholders who brought the cases have revised and refiled their allegations.

Courts now are considering motions to dismiss in cases filed against Prudential and Fidelity Investments.

Credit Suisse was pleased about the decisions which the courts have made thus far in the directors' cases, said Jeremy Condie, a spokesperson for the company. The firm also is "very happy" the Strougo case has been dismissed, Condie said.

Sweet's decision last month is somewhat of a reversal for Credit Suisse. In April, 1998, Sweet issued a preliminary ruling in a separate case involving the Brazilian Equity Fund, holding that the directors may not have been independent based on the compensation which they received.

That case, however, is based on allegedly improper conduct arising out of a rights offering by the Brazilian Equity Fund. The contract between the fund and Credit Suisse is not under attack. Credit Suisse has denied the charges and moved to dismiss the case. The court has not yet ruled on the request.


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