Franklin Templeton Investments, the one mutual fund company to refuse to settle class actions related to the 2003 market-timing scandal, proved victorious in court on Dec. 9.
After a six-year legal battle, Judge Frederick Motz of the U.S. District Court for the District of Maryland granted summary judgment in favor of Franklin. “This was a win built painstakingly, block by block, issue by issue, year by year, and the result reached by Mr. Motz is extremely gratifying to Franklin,” said Daniel Pollack, an attorney with McCarter & English LLP, who represented Franklin in the case.
Franklin was among 17 mutual fund company defendants in class actions stemming from the 2003 market-timing scandals that rocked the fund industry. In 2004, the 17 lawsuits were transferred to the U.S. District Court for the District of Maryland to coordinate proceedings.
But unlike its peers, Franklin refused to settle. “Franklin was the last man standing,” Mr. Pollack said. “Franklin decided it had a good defense and was going to pursue this.” In 2004, Franklin did agree to pay $50 million to settle allegations with the Securities and Exchange Commission over the market-timing issue.
In his opinion, Mr. Motz noted that the plaintiffs failed to prove that Franklin hadn't put in place processes to prevent market timing. “Plaintiff's arguments, which can be summed up by accusing FT of doing ‘too little, too late' are unpersuasive,” the judge wrote in his statement. “The record provides ample evidence that FT acted in good faith in attempting to prevent non-arranged market timing in its funds.”
Jessica Toonkel is a reporter at InvestmentNews, a sister publication of Pensions & Investments.