LOS ANGELES — Two lawsuits filed March 24 in Los Angeles County Superior Court put Capital Research & Management, which oversees the American Funds, at odds with the state of California over disclosure of revenue-sharing payments to brokerage firms.
California Attorney General Bill Lockyer is suing Capital Research and American Funds Distributors for securities fraud in failing to disclose $426 million in "shelf space" payments made to brokers that sell and recommend American Funds. Capital Research is suing the attorney general, maintaining Mr. Lockyer does not have the jurisdiction to regulate this issue.
Mr. Lockyer is seeking restitution of profits the defendants obtained as a result of the alleged fraud. American Funds has been a "subject of our investigation since January 2004," said Tom Dressler, a spokesman for the attorney general.
"The payments are little more than kickbacks to buy preferential treatment," Mr. Lockyer said in a statement. "Investors deserve to know that."
Capital Research's lawsuit argued that federal law pre-empts states from regulating mutual fund disclosure, said spokesman Chuck Freadhoff, citing the National Securities Markets Improvements Act of 1996. The act gives the SEC broad jurisdiction to regulate mutual funds sold nationally.
The company wants to block the attorney general from taking any enforcement action based on its disclosures, and "we want the court to declare that our disclosure of additional payments was accurate, not misleading under federal and state law," Mr. Freadhoff said. "We have complied fully with the letter and spirit of the law."
Mr. Lockyer previously settled shelf-space complaints against PA Distributors, the distributor of PIMCO funds, on Sept. 15, and Franklin Templeton Distributors Inc. on Nov. 17.