Excessive Fee Wave Ends With Little Benefit To Investors And Flawed Analysis

Abstract

The most recent wave of excessive fee cases brought under Section 36(b) of the Investment Company Act has ended. While a handful of cases were litigated to bench trials, federal judges did not find in favor of investors. The legacy of this wave is that a number of high-fee funds survived unscathed, despite significant analytical deficiencies in the judicial opinions. This paper argues that federal courts, in applying Section 36(b), have granted too much deference to ineffective and flawed board processes and have been unable to identify and cull specious arguments in support of the fees at issue. In so doing, the courts have have rendered Section 36(b) an entirely ineffective check on excessive management fees, leaving investors dependent entirely on the market to police fees (an outcome that the legislature never intended).