The Boston investment giant Fidelity Management and Research faces a lawsuit alleging it mishandled interest earned on clients’ retirement accounts, using some of the money to pay unauthorized fees to itself.
A complaint seeking class-action status was filed Tuesday in US District Court in Boston but offered little insight into the scope of the alleged abuse. Gregory Y. Porter, an attorney for the plaintiffs, estimated Fidelity could be liable for as much as $2 billion in damages, based on a similar case in Missouri that Fidelity lost last year.
The interest in question was earned on money Fidelity deposited in temporary accounts before participants in 401(k) plans had decided how to invest it long term. Interest earned from such temporary accounts is known as “float income.”
The suit alleges Fidelity used float income to pay itself fees beyond the amounts to which it was entitled for managing 401(k) assets. Fidelity also deposited float income into mutual funds, spreading the money among all fund investors, instead of crediting the interest to the individual 401(k) plans that earned the money, the suit alleges.
“On an individual basis, we’re talking about very small amounts, but that’s what class action is for: to right many small wrongs,” Porter said.
Jennifer Engle, a Fidelity spokeswoman, noted the company is appealing the decision in Missouri and said “we believe that the practices described in this lawsuit are consistent with the law and fair to all parties.”
Callum BorchersCallum Borchers can be reached at firstname.lastname@example.org. Follow him on Twitter @callumborchers.