TRENTON, N.J. (CN) - Blackrock Advisors cost its shareholders "hundreds of millions of dollars" by charging excessive investment management fees, a class action claims in Federal Court.
Lead plaintiff Timothy Davidson sued Blackrock Advisors LLC, Blackrock Investment Management LLC, and Blackrock International Ltd., as trustee of the West Putnam Avenue Trust and for others similarly situated.
He claims that Blackrock breached its fiduciary duty under the Investment Company Act of 1940 "by charging and receiving investment advisory fees ... that are so disproportionately large that they bear no reasonable relationship to the services rendered and could not have been the product of arm's-length bargaining."
Davidson claims that the "investment advisory fee rate charged to the Fund by BRA is excessive for the value of the work actually performed by BRA; and the sub advisory fees paid to BRIM and BRIL are excessive in that the overall sub advisor's fee is significantly higher (as much as $51 million more) than the fees negotiated at arm's-length by BRIM with other clients for the same or substantially the same investment advisory services." (Parentheses in complaint.)
As a result, Davidson says, "the excessive rates charged by the defendants have resulted in the fund paying much more in fees each year than it would pay for investment advisory services had the fee arrangement been negotiated at arm's-length."
As an example, the trustee points to fiscal year 2013, during which he says West Putnam Avenue Trust paid Blackrock Advisors more than $412.5 million in investment management fees.
"BRA then paid the fund's sub-advisers $235.1 million, retaining over $177.3 million of the advisory fee for itself despite doing minimal, if any work," Davidson claims.
Especially galling, he says, is that the trust pays the defendants separate fees for services over and above those directly at issue in the lawsuit.
Davidson seeks compensatory damages and injunctive relief on multiple claims of breach of fiduciary duty, and rescission of the contracts that form the basis for the excessive and illegal fees.
He is represented by Richard Brualdi of New York City.