On July 22, 2015, two shareholders in several State Farm mutual funds filed a lawsuit in U.S. District Court for the Central District of Illinois against the State Farm Investment Management Corporation. This is an excessive fee lawsuit under Section 36(b) of the Investment Company Act.
The plaintiffs' complaint alleges that State Farm is delegating investment management responsibilities for the portfolio of securities held by these funds to an unaffiliated investment manager (BlackRock). Despite this delegation of responsibilities, State Farm is retaining almost 50% of the advisory fee being charged to the mutual funds and their investors.
On August 9, 2016, State Farm filed a motion to dismiss the case, alleging that the plaintiffs cannot state a plausible claim that the advisory fees are beyond what could be bargained for at arm's length. The plaintiffs filed a response to the motion and State Farm filed a reply brief. The plaintiffs then filed a sur-reply brief.
The District Court denied State Farm's motion to dismiss on April 17, 2017. The Court found that the Second Amended Complaint sets forth facts that create a plausible inference that the fees paid to State Farm are disproportionately large in relation to the services rendered, and fall outside of the range of what arm's-length bargaining could produce.
The case now proceeds to discovery.