Trust Updates Archive

20050808BSA BofA Hit with Another Conversion Lawsuit

(Jan. 5, 2006--Chicago, IL)--Conversion class actions keep on coming against Bank of America. There are now six lawsuits questioning the bank's conversion of its common trust funds to proprietary mutual funds. They are viewed by legal experts, however, as substantially one case. The multiple filings, say sources, have less to do with new allegations than with legal strategy: refining the argument against the bank.
The latest class action, filed December 28, 2005, Siepel v. Bank of America, alleges self dealing and inadequate disclosure regarding the bank's conversion of trust accounts. It further alleges that the mutual funds "marched to the Bank's orders," including imposing fees "at least double" that of comparable funds.
Fiduciary legal experts contend that conversions can be beneficial. The risk to banks, they say, is in how the conversion is executed and then managed. Because of inherent conflicts of interest, a bank must document that the conversion is in the best interest of each trust account and then monitor the investment to determine that the bank's proprietary funds continue to be an appropriate investment. At BofA, plaintiffs say, it was corporate policy to keep trust accounts captive in the mutual funds.
"If a portfolio manager selected a non-proprietary mutual fund for investment, a black bomb with a fuse attached would appear on the computer screen warning that the Bank regarded any such prospective investment as 'exceptions'," according to testimony in Kutten v. BofA by Darcy Johnson, a former BofA Vice President and Portfolio Manager.
"Management would keep tally of such 'exceptions' on a 'scorecard' upon which performance was evaluated for compensation purposes," Johnson testified.
Plaintiffs in all six of the BofA lawsuits are essentially represented by the same legal counsel who also represents plaintiffs in a conversion against LaSalle Bank.
For more details, see the upcoming issue of Trust Regulatory News.



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