Class action attorney Stephen Tillery of St. Louis insists that shareholders in mutual funds own the assets of the funds but won't show the proof he claims to possess.

Madison County Circuit Judge Nicholas Byron on May 7 granted Tillery leave to seal 42 pages of exhibits in a suit against Van Kampen Investment Advisory Corporation.

Tillery must win the ownership argument to survive a pending motion to dismiss a claim he brought on behalf of Avery Jackson.

In this lawsuit and others, Tillery claims mutual funds afforded an unfair advantage to shareholders who timed their trades according
to market action overseas.

Tillery associate Robert King said at a March 25 hearing that capital gains taxation of shareholders proves their ownership of assets.

"It just hit me between the eyes," Byron said. "The effects of these gains is something I, as an investor in the fund, have to pay for."

He ordered Van Kampen to show Tillery two years of income tax returns so he could see if they paid capital gains taxes.

He set oral argument May 1.

He cancelled it April 21, "because of a personal commitment," and wrote that he would decide without oral argument after receiving memoranda.

Both sides responded May 2.

"The issue before the Court is whether market timing in a mutual fund injures the fund itself or the mutual fund shareholders," King wrote.

"That question in turn raises the question of who owns the assets in a mutual fund, the fund itself or the mutual fund shareholders," he wrote.

He wrote that timing injures some shareholders and not others, and that if it injured the fund it would injure all shareholders equally.

Sales to market timers instantly and irrevocably dilute ownership of others, he wrote.

King flexibly cast Van Kampen as loser and winner.

First he wrote that "shareholders may sue directly for distinct injuries they suffer, even if the corporation also suffers injury from the same conduct."

Then he wrote, "Market timing harms some shareholders and not others, and it does not harm the mutual fund at all."

"The sale of shares to the market timer actually increases the mutual fund's assets," he wrote.

In response to these arguments the same day, Jack Carey of Winston and Strawn wrote, "This is nonsense."

"Ignoring the corporate form of mutual funds would effectively turn them into investment partnerships, creating entirely new and wholly unintended duties and obligations between otherwise completely independent shareholders," Carey wrote.

He wrote that federal law allows capital gains liability to pass from mutual fund to shareholder in order to eliminate double taxation.

"If Plaintiff were correct, and shareholders of a mutual fund owned the fund's assets," he wrote, "there would be no need for such special legislation."

"Plaintiff's argument that mutual funds are somehow structurally different from other companies because a shareholder pays taxes on the gains merely demonstrates Plaintiff's misunderstanding of mutual funds and the laws that govern them," he wrote.

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