Market Timing
Update – February 16, 2023:
The Market Timing class action, commenced 2006, alleged that certain mutual fund managers permitted certain sophisticated investors to engage in frequent trading in their funds, which diluted the returns of long-term investors, including retail unitholders.
Rochon Genova has represented the long-term investors since the inception of this case, including before the Supreme Court of Canada, on an appeal of an earlier certification motion. The Supreme Court certified the case in 2013. A subsequent case management order split the trial of this proceeding into two stages: a trial in respect of liability, and a trial in respect of damages.
The liability trial was held in February, March and June 2022.
On February 13, 2023, Justice Marcus Koehnen of the Superior Court of Justice issued reasons for judgment in respect of the liability trial. Justice Koehnen found that both Defendants, CI Mutual Funds Inc. and AIC Limited, breached their duty of care to prevent “market timing” in their funds.
The Court held that there was “ample evidence” before it “to demonstrate that the standard of care during the Class Period required the defendants to be aware of the dangers of frequent trading in and out of their funds and take reasonable steps to prevent it. The harm that frequent trading causes to long-term unitholders has been known for decades.”
The Court noted that “mutual fund prospectuses (including those of AIC and CI) warned that frequent trading caused harm to funds and could result in fees of up to 2% being charged to frequent traders.” However, “despite the contents of their prospectuses, the defendants not only failed to take steps to prevent frequent trading or charge the fees set out in their prospectuses when it occurred, they facilitated frequent trading by entering into “Switch Agreements” which allowed certain investors to switch in and out of funds for a fee of only 0.2%.”
The Court found that the defendants permitted sophisticated market timers to execute large volume, short-term trades in their funds, amounting to hundreds of millions of dollars per month, and billions of dollars per year in funds “switched in” and “out”. These unusually large and frequent transactions were readily detectable by the defendant fund managers.
The Court concluded that “the defendants owed a duty of care to the class members to prevent frequent short-term trading in their funds and that they breached that duty of care by falling short of the standard of care as set out in these reasons. As a result of that breach, the defendants allowed time zone arbitrage to occur in their funds to the detriment of the plaintiffs.”
The decision is indexed at: Fischer v. IG Investment, 2023 ONSC 915, and available here: https://canlii.ca/t/jvgqd
The matter will next proceed to a damages trial to determine the harm suffered by the investors.
Joel Rochon, the Managing Partner of Rochon Genova LLP, stated: “We are proud of this result delivered on behalf of the mutual fund investors victimized by the defendants’ wrongdoing. We remain committed to representing retail investors who have suffered losses as a result of corporate misconduct, and to holding large financial institutions accountable.”
For more information about the history of this litigation and the recent decision please click here.
Update – December 17, 2013:
Victory for Access to Justice in Supreme Court of Canada “Market Timing” Decision
Update – March 25, 2008
Tentative Settlement Reached in Market Timing Class Action