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Mutual Fund Regulation - Dissertation Example

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The United States Court of Appeals for the 2nd Circuit Yu, Appellant, v. State Street Corporation, Respondent No. 001 Argued Nov. 20, 2011—November 27, 2011 Justice, C.J.; and Judge One and Judge Two, Js. Attorney A, for the Appellant. Attorney B for the Respondent…
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Mutual Fund Regulation
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Download file to see previous pages We affirm the lower court’s decision. Background The case records reveal that on March 31, 2011, the US District Court for the Southern District of New York denied a class action related to the fall in mutual fund share prices during the 2008 global financial crisis. The plaintiffs’ claims were made pursuant to Sections 11 and 12(1)(2) of the Securities Act of 1933 (hereinafter the Securities Act). Specifically, the plaintiffs claimed that the relevant prospectus issued by the SSgA Yield Plus Fund misrepresented the Mutual Fund’s risk exposure to mortgage associated securities. The US District Court for the Southern District of New York denied the plaintiffs’ claims on the grounds of loss causation pursuant to Section 10 (b) of the Securities Act. It was held that under Sections 11 and 12(a)(2) of the Securities Act, the allowable quantification of damages is confined to a decrease in the value of securities that follows from the transmission of fabricated inflation/misrepresentation of the purchase price of security. Since mutual fund shares may only be sold or redeemed at a statutorily formulated price based on the net asset value (NAV) of the fund’s securities, misrepresentations in the corresponding prospectus cannot inflate the NAV of the mutual fund and thus cause a fall in the NAV. Therefore the lower court held that the plaintiff’s complaint did not properly plead the required loss causation and the action was subsequently dismissed with prejudice (Yu v. State Corporation, 2011). The Appellant claimed that the document offering the mutual funds “misrepresented the nature of the securities or investment held by the Yield Plus Fund”, misrepresented its description, the Fund’s objectives and the risks associated with mortgage exposures and the risk associated with investing in the Fund (Yu v State Street Corporation, 2011). The Respondent claims that the Appellant’s motion should be dismissed because (as previously argued) the Appellant did not plead “falsity and materiality” (Yu v State Street Corporation, 2011). The Respondent also argue once again that the certifications that they indorsed did not contain false “statements of material facts”; the Appellant’s claims should be denied because the Respondents are not vendors of the mutual funds; and the “control person claims under Section 15” should be dismissed (Yu v State Street Corporation, 2011). The Respondents also claim that the loss causation is not substantiated because even if the statements had been substantiated, the damages claimed are not linked to the alleged misrepresentations or omissions relied on. Opinion Securities Act of 1933, Sections 11(a) and 12 (a)(2) When investors purchase mutual fund shares based on a mutual fund’s published statement and the latter reflects a material misstatement, investors have wide remedial recourse pursuant to Sections 11(a) and 12 (a)(2) of the Securities Act. The investors are able to recover the resulting decline in the value of the shares without having to claim reliance upon the misstatement or without having to prove that the defendant was somehow culpable in terms of the misstatement. Additionally, the claims under Section 11 (a) and 12(1)(2) do not call upon the shareholders to comply with ...Download file to see next pages Read More
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