Investors turn to advisers for records related to market-timing scandals

Settlement amounts may not always be worth effort to file for them

Oct 3, 2010 @ 12:01 am

By Jessica Toonkel

The mutual fund market-timing scandal of 2003, which may seem like ancient history to some, is coming back to haunt many financial advisers.

Over the past few months, thousands of mutual fund investors have begun receiving notices from fund companies telling them that they may be eligible for a settlement as part of these class actions. As a result, many have been calling their current and former advisers asking them to locate related records and fill out the forms that they need to get paid.

“The scope of this is bigger than usual class action lawsuits because of the number of funds involved,” said Ned Dodds, chairman of the white-collar securities litigation division at Dechert LLP. “As a result, brokers are needing to communicate sometimes with former clients about their claims.”

Investors are just now getting notices about the settlements because it has taken six years for the cases to get through the courts. In 2004, the 17 lawsuits were consolidated at the U.S. District Court for the District of Maryland in Baltimore to coordinate proceedings.

Sixteen of the 17 cases have reached a settlement, and the court is scheduled to approve or modify the settlements next month. Dec. 8 is the deadline for investors to submit claims.

With the deadline looming, advisers have been besieged by requests from current and former clients for records dating back in some cases to 1998.

And for advisers — many of whom are with firms that have been consolidated or changed hands — getting their hands on the records is difficult, if not impossible, according to some. Brokerage firms are required to keep records for seven years.

“If I need to go back more than three years, I have to go to the archive, which means going through boxes in the basement of our buildings,” said Charles Rutan, an adviser with St. Clair Investment Advisors. “I would have to hire people to move boxes to get to the boxes to see even if we have the records dating back to 1998.”

Mr. Rutan estimates that he has spent at least 10 hours fielding requests from clients and former clients about claims.

The time involved is often not worth the amount of money that the client could collect from a settlement, said Corey Vertich, a principal at Uhler & Vertich Financial Planners LLC. After his staff started receiving calls from clients about the notifications, he held a meeting and decided that for every client who called, the firm would figure out what the maximum potential settlement could be.

“If it was deemed worth it, we will do the paperwork; but if not, we tell our clients that it's not worth it,” Mr. Vertich said.

So far, potential settlement amounts have ranged from 80 cents to $11,000, he said.


But even with this weeding-out process, Pamela Lyons, client information manager for Uhler & Vertich, said she has spent at least 18 hours working on these requests.

“It's burdensome to just calculate whether or not there is any value filing the form in the first place,” she said.

Some advisers aren't even doing those preliminary calculations.

“You have to look at what's worth your time, versus finding the records from eight years ago,” said Bob Kargenian, founder of TABR Capital Management LLC. “If clients call us and tell us they got this mailing, we just tell them to throw it out because it's not worth their time.”

Other advisers are going through the work regardless of the potential settlement amounts.

“It is time-consuming, but my feeling is that we are fee-based, and clients are paying us a fee for that service,” said Nancy Caton, an independent adviser with $167 million in assets under management.

Some investors are being forced to pay to get access to their records older than seven years, said attorney Theodore A. Bechtold.

“I have clients who were told they have to pay $50 to get their records,” he said.

E-mail Jessica Toonkel at


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