(Article from Registered Funds Regulatory Update, January 2022)
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American Century Investments has been accused of charging excessive fees for purported active management on its $2.4 billion American Century Value Fund (the “Fund”) when instead the Fund’s investment strategy closely tracks its benchmark index (i.e., practicing “closet indexing”). The class-action lawsuit against the Fund and its directors, as well as the Fund’s investment adviser and distributor, is the first of its kind in the United States.
The Complaint alleges that the Fund has consistently failed to meet or outperform its index, while continuing to charge fees that are higher than passive index funds that are designed to generate benchmark returns. Moreover, since the Fund is charging higher fees for purportedly active management, the Complaint alleges that the Fund has no real prospect of ever outperforming its benchmark since these additional fees virtually ensure that the Fund cannot match its benchmark over time, let alone beat it. Since the Fund explicitly represents that it is actively managed, the Complaint further alleges that the Fund’s offering documents are untrue and misleading.
The complaint claims violations under Sections 11, 12 and 15 of the Securities Act. American Century has denied all claims in the lawsuit.
Complaint, Hays v. Am. Century Cap. Portfolios, Inc., Case 3:21-cv-08625
(N.D. Cal. Nov. 5, 2021).