Madison County Circuit Judge Nicholas Byron has granted attorney Stephen Tillery an opportunity to prove that shareholders of mutual funds own the assets of the funds.

Byron on May 20 denied a motion to dismiss a class action complaint Tillery client Avery Jackson filed in 2003 against Van Kampen mutual funds.

At a March 25 hearing, Tillery associate Robert King told Byron that shareholder ownership of assets would override laws barring individual shareholder claims.

Byron asked for briefs and received them May 2. He sealed 42 pages of exhibits that King submitted with his brief.

Byron read the briefs and denied the motion to dismiss.

"This Court feels discovery should proceed fully so that a complete factual basis may be established, so that if there is a final appellate determination on the issues here in Illinois, it will be rendered on a complete fixed factual basis," he wrote.

He wrote that Maryland law applied and no holdings there would affect this action.

"There are other holdings in other jurisdictions that appear to allow individual claims to be asserted against mutual funds," he wrote.

Jackson's claim, he wrote, "is based on an individual injury sustained by the fund shareholders through the actions of the defendant; the contention being that the shareholders are the true beneficial owners of the fund's assets."

"There is nothing in Illinois law that would bar plaintiff's position, though Illinois is silent on this exact issue; but unless there is intervening law out of Maryland barring individual claims in this matter, it would be premature to allow Van Kampen's motion to dismiss at this time," Byron wrote.

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

King argued in his May 2 brief that market 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.

Van Kampen attorney Jack Carey replied in his brief that, "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.

"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."

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