Fund Giants Sued for Walking Away From Settlement Money

Disgruntled mutual fund investors filed lawsuits against more than 40 of the largest U.S. mutual fund providers for failing to collect and distribute billions of dollars by neglecting to file claim for money from settlements of former shareholder lawsuits, The New York Times reports.

The plaintiffs contend that over the past five years, shareholders won $12.5 billion in settlements from firms like Nike, PeopleSoft and Lucent Technologies, but the investment providers, which are entitled to some of the damages, failed to collect nearly $2 billion.

Investment powerhouses like Wells Fargo, Janus and Dreyfus are being named as defendants.

As a result, the mutual fund providers have a lot of questions to answer. Shareholders want to know why portfolio managers invested in big companies facing sizable lawsuits and whether they are entitled to a portion of those damages. The outcome of the trial could establish lasting precedents for the industry.

Settlement dollars from class-action lawsuits are deposited in escrow accounts, and shareholders then file claims for a portion of the assets. Individual allotments are sometimes doled out based on the amount of shares held by a particular investor.

Vanguard maintains that it filed for its share of the litigation dollars and says the latest lawsuit is baseless. Spokesmen at other firms declined to comment.