A Fidelity Investments shareholder last week filed suit against the fund management company and its affiliates, alleging that well-paid Fidelity fund directors have become a "rubber stamp" for what the shareholder contends are excessive fees charged investors.

The suit filed Wednesday in U.S. District Court in Boston contends Fidelity funds' independent directors frequently receive more than $200,000 per year in compensation for serving on more than 200 fund boards each. The independent directors' multiple board memberships are "excessive" and result in "assembly-line, truncated board meetings," according to the complaint by shareholder Richard T. Krantz.

Fidelity independent directors' multiple board memberships "effectively prevents them from being able to fulfill their statutory role as watchdogs," Krantz alleges. "Rather, the boards merely rubber-stamp proposals ...."

Boston-based Fidelity, the largest fund company in the U.S., has engaged in "fee gouging," Krantz alleged. Among other things, Krantz wants Fidelity to pay damages equal to one year's worth of fees on all of its finds. Krantz did not specify a dollar figure.

A Fidelity spokesperson said the company had not yet seen the suit but that it would, in any case, "aggressively defend" itself. Two of Krantz' attorneys, Joel Feffer of Wechsler Harwood Halebian & Feffer in New York and Ronald B. Rubin of Rockville, Md., declined to comment.

The suit was filed one day after critics of the fund industry contended in Congressional testimony that fund directors have failed adequately to oversee industry fees. Financial planner Harold Evensky of Coral Gables, Fla., told a subcommittee of the House Commerce committee Tuesday that directors' supervision of funds with respect to fees has been "inadequate." Citing an unidentified analysis of fees paid to fund independent directors, Evensky said that "trustees have not only failed to deliver lower costs; the more the trustee is paid the higher the fund expenses."

Krantz made the identical argument in his complaint, citing a 1996 study by Morningstar, the funds research company in Chicago. The allegations were specific with respect to Fidelity's earnings. Krantz said that Fidelity revenue in 1985 was $388.6 million, or 1.085 percent of $35.8 billion in assets under management. In 1995, revenue was $4.3 billion, or 1.146 percent of $373.3 billion in assets under management.

"Despite the fact that assets under management increased by approximately ten and one-half times between 1985 and 1995, defendants' take increased by 0.061 percent, which resulted in their receiving an extra $228,000,000 of compensation in 1995 alone," Krantz alleged.

The effect of fees on fund director independence has been a hot legal issue for funds since May, 1997. At that time, U.S. District Court Judge Robert Sweet ruled that a director may lose his independent status because of the fees he receives. The Investment Company Act -- the federal law which governs mutual funds -- requires that at least 40 percent of a fund's directors not be employees of the fund adviser.

Fund directors have been the subject of criticism even from those in the fund industry. John Bogle, founder and senior chairman of the Vanguard Group, said in an essay in the October edition of Mutual Funds magazine that he found it "almost unconscionable" that independent directors "would continue to approve almost whatever fee is proposed to the fund board by the fund manager."

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