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Congressman Tom Emmer

Representing the 6th District of Minnesota

Emmer Introduces Legislation to Halt Excessive Litigation, Allow Americans to Continue Investing in the American Dream

January 10, 2018
Press Release

WASHINGTON, DC - Congressman Tom Emmer (MN-06), a member of the House Financial Services Committee, introduced the Preventing Excessive Mutual Fund Litigation Act to help protect the security of Americans' mutual fund investments, which are heavily regulated and too often the target of lengthy and costly lawsuits.

“Whether it’s the recent college graduate starting to save in a 401(k) plan at her first job, the young family who wants to save to pay for their children’s education, or the elderly couple who wants to better manage their assets in retirement, mutual funds are essential tools to help invest in the American dream,” said Congressman Emmer. “By cutting down the number of frivolous lawsuits targeted at mutual funds, we can allow Americans to continue to make the investments they need for their future.”

Mutual funds are the go-to financial product for millions of Americans. A recent study found that 55 million households in America own mutual funds. These funds are heavily regulated and are often subject to excessive and unfounded lawsuits known as Section 36(b) suits. 

Abuse of these Section 36(b) suits can cost tens of millions of dollars and divert countless hours to address paperwork and administrative concerns that fund advisors and directors would otherwise be using to improve the returns for their investors. Although the Supreme Court in 2010 reinforced a standard known as the “Gartenberg Standard” which has been used by courts for over 25 years to assess claims of excessive fees – and regardless of the fact that none of the Section 36(b) lawsuits brought in the past 45 years have resulted in a final judgment against the adviser – excessive and non-meritorious suits continue to be filed. 

Emmer's bill seeks to curb excessive litigation by requiring plaintiffs in these Section 36(b) suits to spell out the factual basis for their claims at the outset and support their claims with “clear and convincing evidence.” This standard is used when dealing with disputes under the Employee Retirement Income Security Act (ERISA) as well as other federal laws, and would enable courts to terminate lawsuits that lack merit on motions to dismiss, before they reach the expensive pre-trial discovery phase of the litigation. 

Read the full text of H.R. 473here.

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