Last week, the Forum filed a “friend of the court” brief urging the Supreme Court to review the Ninth Circuit's ruling in Northstar Financial Advisors Inc. v. Schwab Investments et al, warning that the harm of the decision to investors and funds will be “both immediate and severe.” The Ninth Circuit held that the fund’s prospectus and registration statements create a contract that could be the basis of a direct action by investors against fund trustees. The Forum’s brief argues that by finding an implied private right of action in the Investment Company Act, the Ninth Circuit's decision “represents a dangerous departure from decades of legislation and jurisprudence.” The brief highlights the harm of allowing investors to pursue breach of contract, finding that it “is certain to yield a patchwork of conflicting obligations under the laws of different jurisdictions and to increase the costs of mutual fund operations – all to the detriment of investors to whom those costs will be passed in the form of higher fees and expenses.” Far from being “puppets of the investment adviser," the Forum’s brief outlines the “the fundamental role fund directors play in the regulatory scheme of protecting shareholders' interests.”
For more information on the impact of the decision on directors, see the Forum’s recent webinar Considerations for Directors in Light of Northstar Financial.