BlackRock faces a lawsuit accusing the asset manager of overcharging investors in over 70 equity mutual funds through improper accounting that inflated fund values, leading to higher fees and tax bills.
The lawsuit raises significant concerns about accounting practices within large asset managers and their impact on investor fees and tax liabilities, potentially affecting millions of investors and the integrity of mutual fund valuations.
BlackRock, one of the world's largest asset managers, is facing a lawsuit from investors who allege the company overcharged them by using improper accounting methods to inflate the values of over 70 equity mutual funds. The complaint, filed in a New York state court, claims that BlackRock misclassified dividend income and realized capital gains as fund assets, thereby artificially boosting the net asset values (NAVs).
Investors contend that these inflated NAVs led them to purchase fewer shares than they were entitled to and resulted in higher management fees and tax bills, as they were paying based on liabilities rather than actual assets. The lawsuit accuses BlackRock of violating the Securities Act of 1933 and seeks unspecified damages for investors in actively managed and indexed equity mutual funds over the past three years.
BlackRock, which managed $13.89 trillion in assets as of March, including $7.66 trillion in equities, has not yet responded to requests for comment. The company has previously stated that over half of its managed assets are in retirement accounts, which have different tax implications. The investors' complaint argues that BlackRock's standard disclosures about potential tax liabilities from purchasing shares shortly before dividend distributions do not excuse the alleged broader issue of artificially inflated NAVs.
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