Updated with correction
A U.S. District Court in Denver has ruled for Great-West Capital Management and Great-West Life & Annuity Insurance Co., rejecting claims of excessive fees for advisory and administrative services alleged by participants in several retirement plans and individual retirement accounts.
The plaintiffs contended that the fees violated a provision of the Investment Company Act. It imposes a fiduciary duty on investment advisers “with respect to the compensation they receive for providing services to mutual funds,” wrote U.S. District Judge Christine M. Arguello in an Aug. 7 opinion.
“Plaintiffs failed to meet their burden of proof with respect to claims that defendants breached their fiduciary duties,” the judge wrote. “Plaintiffs failed to meet their burden to prove that they suffered actual damages due to plaintiffs’ conduct.”
Great-West Life & Annuity Insurance Co is a subsidiary of Great-West Lifeco Inc., a Winnipeg financial services holding company. The record keeper, Empower Retirement, which is not a defendant, is a division of Great-West Life. Great-West Capital Management, an affiliate of Great-West Life, is an investment adviser to Great-West Funds Inc., which provides mutual funds to clients.
The ruling covers the consolidation of three lawsuits against Great-West entities, the first of which was filed in January 2016. Plan sponsors weren’t named as defendants.
Ms. Arguello conducted an 11-day bench trial in January.
“The court finds that plaintiffs failed to prove by a preponderance of the evidence that defendants breached their fiduciary duties,” Ms. Arguello wrote. “Defendants presented persuasive and credible evidence that overwhelmingly proved that their fees were reasonable and that they did not breach their fiduciary duties.”
Ms. Arguello criticized the only expert witness called by the plaintiffs’ attorneys during the trial, who tried to show the plaintiffs had suffered losses due to the actions of the defendants.
The witness “was thoroughly discredited on cross examination” during the trial, she wrote.
“His damages calculations did not take into account relevant information such as expense limitation agreements that caused GWCM to return funds to shareholders from its advisory fees,” Ms. Arguello wrote.
Noting that the expert’s “most recent relevant employment” ended in 2009, “he was unfamiliar with relevant changes in the mutual fund industry that have occurred in the past 11 years,” she wrote.
“He was unaware of recent SEC rules or how those rules impact defendants’ operations,” Ms. Arguello added. “Moreover, in addition to the general inadequacy of his testimony, his specific theories regarding plaintiffs’ alleged damages are legally flawed.”
