"Mutual Fund Case Settled Out of Court" - December 7, 2001
Josh Kurtz, The Gazette
Annapolis - The law fought James Roumell, and James Roumell won.
Roumell, a Chevy Chase investment adviser, had waged a lonely campaign during the last General Assembly session to defeat a bill that could have derailed a nationwide class action suit he had filed against a mutual fund company. He lost that battle, but he won the war: Last month, Roumell received a $6.5 million settlement in the case -- without going to court.
"It's nice to see it come to a happy end for my Maryland clients," Roumell said this week.
Roumell had sued the directors of Franklin Resources Inc., a major mutual fund company, in 1998 after investors in Franklin's Templeton Vietnam Opportunities Fund lost $40 million. The suit claimed that Franklin had violated the terms of its prospectus by funneling some of the investors' money into Thailand, where the stock market later crashed.
But after three years of trying, the legislature this year passed a bill that made it more difficult to sue directors of mutual fund companies - 1,500 of which are incorporated in Maryland. Worse, from Roumell's point of view, legislators made the bill retroactive to just days before Roumell filed his federal suit against the Templeton Vietnam fund, a Maryland entity, leaving the success of his suit very much in doubt.
The bill was designed to protect Maryland's securities industry, which was considered vulnerable to lawsuits following a 1997 New York court case that made it easier to sue mutual fund company directors for bad investments. But the retroactive nature of the bill was particularly controversial in Annapolis, and some legislators, along with the Maryland State Bar Association, opposed it for that reason. The bill's sponsors insisted that they had never heard of Roumell's case and were merely trying to protect the securities industry.
Roumell said the terms of the settlement prevent him from discussing the case further. By settling out of court, Franklin Resources admit no wrongdoing and is not required to mention the settlement in future prospectuses.
A spokeswoman for California-based Franklin Resources, Lisa Gallegos, said the company agreed to the settlement to avoid the time, energy and expense of a court case. Gallegos said she did not know why the company chose not to use the new Maryland law to its advantage.
"I'm sure that our group would have looked at any and all options," she said.
Bryson F. Popham, State House lobbyist for the Maryland Securities Association, said Thursday that he was unaware that Franklin and Roumell had settled their case, and did not know if there would be any fallout in Annapolis.
"I don't have any knowledge that a bill on this issue, pro or con, will be introduced this session," he said.
