SMITH V. FRANKLIN TEMPLETON DISTRIBUTORS, INC.



 A shareholder of the Franklin Custodian Funds initiated a lawsuit on behalf of the Funds against the trustees of the Funds and the distributor of the Funds (Franklin/Templeton Distributors). The lawsuit alleged that the defendants approved “asset-based compensation” to broker-dealers holding mutual fund shares in a brokerage account, contrary to the Investment Advisers Act of 1940 and a recent D.C. Circuit Court of Appeals case, Financial Planning Association v. SEC.

 

 The plaintiff argued that, under the federal securities laws, broker-dealers may only receive compensation from transactional commissions and may not receive asset-based compensation, unless the broker-dealer is holding the shares in an advisory account subject to the Investment Advisers Act.

 

This lawsuit was filed in U.S. District Court for the Northern District of California. On June 8, 2010, the Court granted the Motion to Dismiss the case filed by the defendants. Shortly thereafter, the plaintiff amended his Complaint and, on October 22, 2010, the Court again granted the defendants’ Motion to Dismiss the case. The plaintiff has appealed this decision to the Ninth Circuit Court of Appeals. On June 14, 2011, the plaintiff filed a Motion to voluntarily terminate its appeal. 

  • Plaintiff Files Motion to Voluntarily Dismiss the Appeal
    On June 14, 2011, the plaintiff filed a Motion to voluntarily dismiss his appeal before the Ninth Circuit Court of Appeals.
  • Plaintiff Files Reply Brief with Ninth Circuit Court of Appeals
    On May 31, 2011, the plaintiff filed a Reply Brief in his appeal before the Ninth Circuit Court of Appeals.
  • Defendants File Brief with Ninth Circuit Court of Appeals
    On April 28, 2011, the defendants filed their brief with the Ninth Circuit Court of Appeals.
  • Plaintiff Files Brief with Ninth Circuit Court of Appeals
    On March 14, 2011, the plaintiff filed his brief with the Ninth Circuit Court of Appeals.
  • Court Grants Defendants’ Motion to Dismiss
    On October 22, 2010, the Court granted the defendants’ Motion to Dismiss this lawsuit. The Court determined that the plaintiff had failed to state a claim.
  • Defendants File Reply Memorandum on Motion to Dismiss
    On October 6, 2010, the defendants filed a Reply Memorandum on the Motion to Dismiss.
  • Plaintiff Files Memorandum in Opposition to Motion to Dismiss
    On September 17, 2010, the plaintiff filed a Memorandum in Opposition to the Motion to Dismiss. In his Memorandum, the plaintiff argued that it has cured each of the deficiencies identified by the Court in its earlier Order dismissing the original Complaint and permitting the plaintiff to file and Amended Complaint.
  • Defendants File Motion to Dismiss the Lawsuit
    On August 20, 2010, the defendants filed a Motion to Dismiss the Amended Complaint, as filed by the plaintiff. In their Motion, the defendants argued that the federal securities laws permit Rule 12b-1 fees to be paid to broker-dealers by mutual funds.
  • Plaintiff Files Amended Complaint
    On July 7, 2010, the plaintiff filed an Amended Complaint, alleging again that broker-dealers are prohibited from receiving asset-based compensation, including Rule 12b-1 fees, in brokerage accounts.
  • Court Grants Motion to Dismiss the Lawsuit
    On June 8, 2010, the Court granted the defendants’ Motion to Dismiss this lawsuit. In its opinion, the Court determined that the payment of 12b-1 fees to broker-dealers was authorized under the federal securities laws and that the Financial Planning decision by the D.C. Circuit Court of Appeals did not address the payment of 12b-1 fees.
  • Defendants File Reply Memorandum on Motion to Dismiss
    On March 5, 2010, the defendants filed their Reply Memorandum, arguing that the payment of Rule 12b-1 fees to broker-dealers is not a violation of the federal securities laws.
  • Plaintiff Files Memorandum in Opposition to Motion to Dismiss
    On February 12, 2010, the plaintiff filed a Memorandum in Opposition to the Motion to Dismiss. In his Memorandum, the plaintiff argued that the Investment Advisers Act of 1940 prohibits broker-dealers from receiving asset-based compensation unless they are registered as investment advisers and offered advisory accounts (as opposed to brokerage accounts) to their customers.
  • Defendants File Motion to Dismiss the Lawsuit
    On January 22, 2010, the defendants filed a Motion to Dismiss this lawsuit. The defendants argued, among other points, that the asset-based compensation being paid to broker-dealers is authorized by SEC Rule 12b-1.
  • Shareholder Files Derivative Complaint on Behalf of Franklin Custodian Funds
    On October 6, 2009, a shareholder filed a derivative complaint against the trustees and distributor of the Franklin Custodian Funds. The Complaint alleged that Franklin paid asset-based compensation to broker dealers in a manner contrary to the Investment Advisers Act of 1940 and a recent D.C. Circuit Court of Appeals decision, Financial Planning Association v. SEC.
There are currently no blog posts related to this issue.

 A shareholder of the Franklin Custodian Funds initiated a lawsuit on behalf of the Funds against the trustees of the Funds and the distributor of the Funds (Franklin/Templeton Distributors). The lawsuit alleged that the defendants approved “asset-based compensation” to broker-dealers holding mutual fund shares in a brokerage account, contrary to the Investment Advisers Act of 1940 and a recent D.C. Circuit Court of Appeals case, Financial Planning Association v. SEC.

 

 The plaintiff argued that, under the federal securities laws, broker-dealers may only receive compensation from transactional commissions and may not receive asset-based compensation, unless the broker-dealer is holding the shares in an advisory account subject to the Investment Advisers Act.

 

This lawsuit was filed in U.S. District Court for the Northern District of California. On June 8, 2010, the Court granted the Motion to Dismiss the case filed by the defendants. Shortly thereafter, the plaintiff amended his Complaint and, on October 22, 2010, the Court again granted the defendants’ Motion to Dismiss the case. The plaintiff has appealed this decision to the Ninth Circuit Court of Appeals. On June 14, 2011, the plaintiff filed a Motion to voluntarily terminate its appeal. 

Document Title: 
Plaintiff Files Motion to Voluntarily Dismiss the Appeal
Document Desc: 
On June 14, 2011, the plaintiff filed a Motion to voluntarily dismiss his appeal before the Ninth Circuit Court of Appeals.
Document Title: 
Plaintiff Files Reply Brief with Ninth Circuit Court of Appeals
Document Desc: 
On May 31, 2011, the plaintiff filed a Reply Brief in his appeal before the Ninth Circuit Court of Appeals.
Document Title: 
Defendants File Brief with Ninth Circuit Court of Appeals
Document Desc: 
On April 28, 2011, the defendants filed their brief with the Ninth Circuit Court of Appeals.
Document Title: 
Plaintiff Files Brief with Ninth Circuit Court of Appeals
Document Desc: 
On March 14, 2011, the plaintiff filed his brief with the Ninth Circuit Court of Appeals.
Document Title: 
Court Grants Defendants’ Motion to Dismiss
Document Desc: 
On October 22, 2010, the Court granted the defendants’ Motion to Dismiss this lawsuit. The Court determined that the plaintiff had failed to state a claim.
Document Title: 
Defendants File Reply Memorandum on Motion to Dismiss
Document Desc: 
On October 6, 2010, the defendants filed a Reply Memorandum on the Motion to Dismiss.
Document Title: 
Plaintiff Files Memorandum in Opposition to Motion to Dismiss
Document Desc: 
On September 17, 2010, the plaintiff filed a Memorandum in Opposition to the Motion to Dismiss. In his Memorandum, the plaintiff argued that it has cured each of the deficiencies identified by the Court in its earlier Order dismissing the original Complaint and permitting the plaintiff to file and Amended Complaint.
Document Title: 
Defendants File Motion to Dismiss the Lawsuit
Document Desc: 
On August 20, 2010, the defendants filed a Motion to Dismiss the Amended Complaint, as filed by the plaintiff. In their Motion, the defendants argued that the federal securities laws permit Rule 12b-1 fees to be paid to broker-dealers by mutual funds.
Document Title: 
Plaintiff Files Amended Complaint
Document Desc: 
On July 7, 2010, the plaintiff filed an Amended Complaint, alleging again that broker-dealers are prohibited from receiving asset-based compensation, including Rule 12b-1 fees, in brokerage accounts.
Document Title: 
Court Grants Motion to Dismiss the Lawsuit
Document Desc: 
On June 8, 2010, the Court granted the defendants’ Motion to Dismiss this lawsuit. In its opinion, the Court determined that the payment of 12b-1 fees to broker-dealers was authorized under the federal securities laws and that the Financial Planning decision by the D.C. Circuit Court of Appeals did not address the payment of 12b-1 fees.
Document Title: 
Defendants File Reply Memorandum on Motion to Dismiss
Document Desc: 
On March 5, 2010, the defendants filed their Reply Memorandum, arguing that the payment of Rule 12b-1 fees to broker-dealers is not a violation of the federal securities laws.
Document Title: 
Plaintiff Files Memorandum in Opposition to Motion to Dismiss
Document Desc: 
On February 12, 2010, the plaintiff filed a Memorandum in Opposition to the Motion to Dismiss. In his Memorandum, the plaintiff argued that the Investment Advisers Act of 1940 prohibits broker-dealers from receiving asset-based compensation unless they are registered as investment advisers and offered advisory accounts (as opposed to brokerage accounts) to their customers.
Document Title: 
Defendants File Motion to Dismiss the Lawsuit
Document Desc: 
On January 22, 2010, the defendants filed a Motion to Dismiss this lawsuit. The defendants argued, among other points, that the asset-based compensation being paid to broker-dealers is authorized by SEC Rule 12b-1.
Document Title: 
Shareholder Files Derivative Complaint on Behalf of Franklin Custodian Funds
Document Desc: 
On October 6, 2009, a shareholder filed a derivative complaint against the trustees and distributor of the Franklin Custodian Funds. The Complaint alleged that Franklin paid asset-based compensation to broker dealers in a manner contrary to the Investment Advisers Act of 1940 and a recent D.C. Circuit Court of Appeals decision, Financial Planning Association v. SEC.