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Franklin Resources wins dismissal of investor suit

March 14, 2007|From Bloomberg News

Franklin Resources Inc., manager of the Franklin and Templeton mutual funds, won dismissal of a lawsuit over investors' claims that it engaged in a kickback scheme with securities brokers and charged excessive fees.

Franklin made undisclosed payments to brokers to encourage them to push the funds, investors said in a complaint in federal court in Newark, N.J. The investors claimed that Franklin, which oversees $564.7 billion, also failed to lower "grossly disproportionate" fees as its assets grew dramatically.

U.S. District Judge William Martini on Tuesday ruled the plaintiffs failed to state their claim properly under the Investment Company Act, which regulates fee arrangements for investment advice. Allowing the case to proceed could harm the entire industry, Martini ruled.

If plaintiffs proceeded "based upon such paltry allegations, then any fund that grew over time while not simultaneously lowering its fees would be subject to suit under the ICA," Martini's opinion said, referring to the act.

A spokeswoman for San Mateo, Calif.-based Franklin declined to comment.

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