Supreme Court debates mutual fund fee charges

The case put a spotlight on the often cozy relationship between mutual funds and their advisers. It is the advisers who sponsor the fund and choose members of its board, which in turn decides on fees that go to the advisers.

Lawyers for the Obama administration described these arrangements as “fraught with potential conflicts of interests’’ and they urged the justices to open the door to suits against mutual funds if their fees are not in line with those charged to other, similar investors.

But they ran into sharply skeptical questions from Chief Justice John G. Roberts Jr. and Justice Antonin Scalia. The two justices said investors can easily check the fees charged by a mutual fund and take their money elsewhere if the fees are too high.

Roberts and Scalia also questioned whether judges or juries should be given the duty of deciding which fees are too high. Say, for instance, a fund has a consistently above-average performance. “What’s a fair fee in that situation?’’ Roberts asked.

But several others, including Justices Sonia Sotomayor and Stephen G. Breyer, questioned whether the free market can be counted on to police these fees.

They took exception to the ruling last year from the US Court of Appeals for the Seventh Circuit that tossed out a suit against Harris Associates of Chicago, which serves as the adviser for Oakmark Funds. Several investors alleged Harris had charged the fund’s investors fees twice as high as those charged to large pension funds.

In dismissing the suit, Judge Frank Easterbrook said the fees had been fully disclosed.

In a separate case yesterday, the Supreme Court left in place a judge’s ruling that allowed prosecutors to charge a reputed Ku Klux Klansman with kidnapping, more than 40 years after two black 19-year-olds were abducted and killed in rural Mississippi.

The justices rejected a plea from the US Court of Appeals for the Fifth Circuit to rule on whether too much time had elapsed for the case against James Ford Seale to go forward.

The action leaves in place a lower court ruling that the statute of limitations had not expired for a federal kidnapping charge against Seale in the 1964 disappearance. Seale was convicted in 2007 of abducting the men. Disagreeing with their colleagues, Justices John Paul Stevens and Antonin Scalia said the high court should have agreed to hear the case because it raises an important issue that potentially affects similar prosecutions.