Successful cases would result in judgments ordering the repayment of investor losses, payments which could potentially wipe out a fund, Ms. Frankel said.
It seems unlikely, however, that such cases would be successful, Mr. Skinner said.
What [plaintiffs attorneys] are really trying to do is to fit disclosure theories around investment losses, he said.
But investment losses by themselves aren't actionable, Mr. Skinner said.
Even if they never make it to court, disclosure cases could end up costing fund companies a lot of money.
If there are plaintiffs able to get past dismissal and into discovery ... the defense cost is in the many millions, Mr. Skinner said.
I think this is what [plaintiffs attorneys] are banking on, he said. If they can put together a complaint that passes muster, they can impose costs and receive a quick settlement.
Such a scenario would be an added burden to fund advisers, but it wouldnt harm fund investors, said Jeff Keil, president of Keil Fiduciary Strategies LLC, a Littleton, Colo.-based industry adviser.
From some of the suits Ive been involved with, most funds arent so bold as to flow through legal costs to the shareholders, he said.
A flood of lawsuits isnt a given.
We have not witnessed a specific correlation between past economic downturns and a substantial increase in fund industry litigation, said Daniel Steiner, general counsel for the ICI Mutual Insurance Co. in Washington, the non-profit mutual fund insurance company owned by the fund industry.
There was just one federal class action related to mutual funds filed at the end of 2001 months after the technology bubble burst according to the Stanford Law School Securities Class Action Clearinghouse in Palo Alto, Calif. It was eventually dismissed.
Shortly thereafter, however, there was a dramatic increase in the number of mutual fund class actions filed. Eighteen suits were filed in 2003 and 22 in 2004, largely as a result of illegal market timing and late trading that came to light in 2003.
The database maintained by Stanford, however, isnt a complete picture of all litigation filed against mutual funds, as it covers federal class actions only.