Fidelity beats lawsuit over fees in US$439 billion money market fund

A U.S. federal judge dismissed a lawsuit on Wednesday accusing mutual fund giant Fidelity of cheating many investors in its US$439.1 billion Fidelity Government Money Market Fund by keeping them in higher-cost share classes than they were eligible for.THE CANADIAN PRESS/AP-Steven Senne

NEW YORK — A U.S. federal judge dismissed a lawsuit on Wednesday accusing mutual fund giant Fidelity of cheating many investors in its US$439.1 billion Fidelity Government Money Market Fund by keeping them in higher-cost share classes than they were eligible for.

U.S. District Judge Margaret Garnett in Manhattan rejected claims that Fidelity unjustly enriched itself, and the fund’s board and investment managers breached their fiduciary duties, by failing to automatically convert “retail class” shares into lower-cost “premium class” shares once balances hit $100,000 in non-retirement accounts or $10,000 in retirement accounts.

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Retail investors said Boston-based Fidelity shortchanged them out of millions of dollars by continuing to charge fees and expenses of up to 0.42 per cent on their investments, rather than up to 0.32 per cent on the premium class shares.

Garnett, however, said Fidelity fully disclosed the economic consequences of converting or not converting shares. She also said investors neither showed that Fidelity’s disclosures regarding conversions were misleading nor disputed they could readily convert their shares on their own.

“Against this backdrop, it was not ‘outside the bounds of reason’ for defendants to design the fund without an automatic conversion feature,” Garnett said, quoting a legal standard to establish gross negligence.

Lawyers for the investors did not immediately respond to requests for comment. Fidelity and its lawyers did not immediately respond to similar requests.

Garnett distinguished the case from litigation accusing Vanguard of saddling retail investors in its target-date funds with big tax bills when it switched institutional investors into lower-cost shares. She said that switch was “unexpected,” and gave retail investors no say or notice.

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Vanguard settled those cases last year for an estimated $158 million, investors’ lawyers said.

According to Fidelity’s website, $406.4 billion of the money market fund’s $439.1 billion of assets as of February 28 were in the retail share class. Fidelity had $7.1 trillion of assets under management at the end of 2025.

(Reporting by Jonathan Stempel in New York; Editing by Mark Porter)