Investment Adviser Professional Liability
Shareholders unhappy with the performance of their mutual fund sue the fund and its investment adviser. According to the shareholders, the advisor violated its duties to shareholders by failing to conduct adequate research about investments and inappropriately emphasizing investments in unproven micro-cap securities. The defendants argue that the statue of limitations bars the claims, but the court allows the case to proceed to trial. Defense costs just to this stage reach $125,000.

Mutual Fun Management and Professional Liability
Two mutual funds invested in derivatives. When these derivative securities dropped suddenly in value, shareholders sued the funds, their investment advisers and their portfolio managers. Among other allegations, the shareholders claimed that the defendants failed to disclose the risks of the derivative investments, and that they breached their fiduciary duties by investing in such volatile instruments. After a federal judge refused to dismiss the case, the defendants opted to settle for more that $70 million rather than fight the suit in court. Legal defense costs exceeded $1 million.

Independent Director Liability
Mutual fund shareholders sue the fund's investment adviser and board of directors under the Investment Company Act of 1940. The shareholders charge that the board approved excessive fees in violation of its fiduciary duties. Shareholders target the independent directors in particular, whom they claim were uninformed and failed to monitor the fees paid to the adviser. Following a two-week trial, the court finds in favor of the adviser and the directors. However, defense fees and costs for the entire case, which involved protracted discovery and pretrial proceedings, amounted to more than $1.5 million.

Service Provider Professional Liability
An attorney administering the estate of his aunt notices that the dividends for a mutual fund are missing from her account. An investigation reveals that low-level employees at the transfer agent routinely failed to make any attempts to locate individuals when checks were returned and simply waited to be contacted by the investor. Estimates of the market value of such undeliverable accounts are substantial, and the attorney vows to initiate a class-action lawsuit on behalf of investors.

Employment Practices Liability
At a midsize investment adviser, a female employee filed a sexual harassment lawsuit against one of the lead managers. According to the suit, the male manager touched the woman inappropriately, conducted performance reviews over dinner and invited her to his home without her husband. The woman also claimed she was defamed. In a job reference, the manager allegedly suggested she was of such poor character that she "should be barred from the building." The suit went to trial, and a jury awarded the woman $400,000 in damages. In addition, defense costs for the adviser totaled over $250,000.

Directors, Officers and Corporate Liability
With the help of its investment adviser, an investment company purchases stock for its portfolio directly from XYZ company at a favorable price. Soon after, XYZ company commences a tender offer for its shares at a substantially higher price. XYZ shareholders, in turn, sue XYZ's directors and officers as well as the investment adviser and investment company. The shareholders argue that the investment company and adviser aided and abetted a breach of fiduciary duty by XYZ's directors and officers. A court refuses to dismiss the claims and allows the suit to proceed. The investment company and its adviser face legal fees in excess of $500,000 and damages of nearly $2 million.

Fiduciary Liability
An investment company offers 10 new mutual funds to the public. Because the company believes these funds to be a promising investment opportunity, it transfers assets from its own pension and 401(k) plans into its new mutual funds. A former employee brings a class-action lawsuit against the investment company, alleging a breach of fiduciary duty under ERISA. The suit contends that the investment company placed pension assets in these funds knowing that they had high fees and, at the time, mediocre performance. The company insists there was no wrongdoing, but must confront a demand by the plaintiffs of over $50 million).