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Lawsuit Alleges BlackRock Inflated Fund Values, Overcharged Investors
Summary
A new lawsuit accuses BlackRock of improperly inflating the net asset values of over 70 mutual funds, causing investors to pay excessive management fees and higher taxes. The complaint, filed in New York, alleges violations of federal securities law.
BlackRock, the world's largest asset manager, is facing a lawsuit from investors who allege the firm systematically overcharged them by using improper accounting methods. The complaint claims that for more than 70 equity mutual funds, BlackRock artificially inflated fund values, resulting in higher fees and tax bills for shareholders.
Details of the Allegations
According to the complaint filed on Monday in a New York state court, BlackRock misclassified dividend income and realized capital gains as fund assets. The lawsuit argues these sums should have been treated as liabilities, as they are required to be distributed to investors within the tax year.
This alleged practice of inflating the funds' Net Asset Values (NAVs) had several negative consequences for investors, the suit claims. It caused them to receive fewer shares than they were entitled to for their investment and forced them to pay higher management fees, which are calculated as a percentage of a fund's total assets. Investors also faced unexpectedly higher taxes on distributions that the lawsuit characterizes as fund liabilities.
Legal Claims and Scope
AdThe lawsuit accuses BlackRock of violating the Securities Act of 1933, a federal law that governs the sale of securities. It seeks unspecified damages on behalf of investors in the firm's actively managed and indexed equity mutual funds over the past three years.
The complaint dismisses BlackRock's standard disclosure about the tax implications of "Buying a Dividend"—purchasing shares shortly before a distribution. The plaintiffs argue this warning "conceals the far broader and more damaging reality" of the daily NAV inflation.
Company Profile and Response
BlackRock has not yet publicly responded to the allegations. The New York-based firm managed $13.89 trillion in assets as of the end of March, with $7.66 trillion of that in equities. The company has previously stated that more than half of its assets under management are held in retirement accounts, which have different tax considerations than non-retirement accounts.