By Jonathan Stempel
NEW YORK, July 13 (Reuters) – BlackRock, one of the world’s largest asset managers, was sued on Monday by investors who said it stuck them with higher management fees and tax bills by using improper accounting that inflated the values of more than 70 equity mutual funds.
• According to a complaint filed in a New York state court in Manhattan, BlackRock misclassified dividend income and realized capital gains as fund assets, despite having to distribute these sums to investors within the tax year.
• Investors said the inflated NAVs caused them to buy fewer shares than they were entitled to, and pay management fees and higher taxes on what were essentially fund liabilities.
• BlackRock did not immediately respond to requests for comment.
• The New York-based company ended March with $13.89 trillion of assets under management, including $7.66 trillion in equities.
• BlackRock has said more than half of the assets it manages are in retirement accounts, whose tax consequences differ from those of non-retirement accounts.
• According to the complaint, BlackRock’s conduct wasn’t excused because the company warned investors, as do many fund managers, they may incur tax liabilities by purchasing shares shortly before dividends are distributed.
• “The ‘Buying a Dividend’ disclosure conceals the far broader and more damaging reality: that the NAV of the respective BlackRock Funds are artificially inflated by accruedincome and gains every day,” the complaint said.
• Investors accused BlackRock of violating the Securities Act of 1933, which regulates the offering and sale of securities.
• The lawsuit seeks unspecified damages for investors in BlackRock actively managed and indexed equity mutual funds over the last three years.
• Lawyers for the investors did not immediately respond to requests for additional comment.
(Reporting by Jonathan Stempel in New York; Editing by David Gregorio)
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