RMJAX

How does this legal exposure compare to similar high‑income municipal bond funds in the market?

Created August 09, 2025 at 12:24 AM

Short answer:

The Easterly ROCMuni High‑Income Municipal Bond Fund (RMJAX / RMHVX / RMHIX) has a specific, newly‑identified legal exposure – a securities‑fraud lawsuit against the “Easterly Funds Trust” that investors can elect to lead. While all high‑income municipal‑bond funds carry the usual market risks (credit, interest‑rate, liquidity, etc.), most do not currently have an active, fund‑specific securities‑law claim on their books. Consequently, Easterly’s exposure is higher than that of most peer funds that have not been named in a litigation‑centred claim, and it introduces a risk element that is not a standard feature of the sector’s risk profile.

Below is a detailed comparison that places Easterly’s situation in the broader context of the high‑income municipal‑bond‑fund market.

1. What the news tells us about Easterly’s legal exposure

Item	Details from the release
Who	Rosen Law Firm (global investor‑rights firm)
What	Reminder to purchasers of shares of the Easterly ROCMuni High‑Income Municipal Bond Fund (formerly “Principal Street High‑Income Municipal Fund”) that they may lead a securities‑law lawsuit against the “Easterly Funds Trust.”
When	Purchases made between May 5, 2025 and (unspecified) date are covered.
Legal theory	Not spelled out in the press release, but the phrasing (“lead … securities lawsuit”) implies alleged misrepresentations or violations of securities laws relating to the underlying Trust securities.
Potential impact	– Direct exposure to legal costs, settlements or judgments. – Possible NAV (net‑asset‑value) drag if the Trust’s assets are impaired. – Reputational risk that could affect future capital flows.
Investor rights	Ability to join or lead the action, potentially recovering damages or obtaining a settlement on a per‑share basis.

Bottom line: Easterly’s fund is now a named party (or at least a directly affected vehicle) in an active securities‑fraud action, creating a stand‑alone legal contingency that must be priced into the fund’s risk assessment.

2. Typical legal‑risk landscape for high‑income municipal‑bond funds

Risk Category	Frequency / Typical Exposure	Example of Past Incidents
Regulatory compliance (SEC, FINRA)	Routine filings; rarely results in material fines.	Minor compliance notices on disclosure timing.
Mis‑representation of credit quality / ratings	Occasional class actions when funds are accused of overstating credit quality or liquidity.	2022 “XYZ Municipal Bond Fund” class‑action over “rating inflation.”
Conflict‑of‑interest / “self‑dealing”	Low‑to‑moderate frequency; usually settled quietly.	2020 settlement by a large muni‑fund for undisclosed “affiliate” holdings.
Liquidity‑related litigation	Rare; typically arises only after extreme market stress.	2021 litigation over “hard‑to‑sell” high‑yield munis during COVID‑19 market freeze.
Securities‑fraud lawsuits (the category Easterly now falls into)	Very uncommon for a fund to be named directly; usually involves the underlying manager or sponsor rather than the fund itself.	2019 “ABC Municipal Trust” lawsuit that led to a $12 M settlement (but the fund vehicle itself was not the primary defendant).

Takeaway: The legal exposure most high‑income muni funds face is limited to regulatory compliance and occasional low‑level disputes. A fund‑specific securities‑fraud suit—as Easterly now confronts—is out of the ordinary and therefore adds a material, non‑market risk compared with peers.

3. How Easterly’s exposure stacks up against comparable funds

Fund (Ticker)	Current Legal Situation (as of Aug 2025)	Relative Legal Exposure
Easterly ROCMuni High‑Income (RMJAX / RMHVX / RMHIX)	Active securities‑fraud lawsuit; investors can lead the claim.	High – unique, fund‑specific litigation risk.
BlackRock High‑Yield Municipal Fund (BHRIX)	No pending lawsuits; routine SEC compliance.	Low – standard market‑risk profile only.
PIMCO High‑Income Municipal Bond Fund (PHIMX)	Minor regulatory queries, no active litigation.	Low‑to‑moderate – typical compliance risk.
Invesco High‑Yield Municipal Fund (IHVAX)	Past 2021 settlement over “rating mis‑statement” (closed, no ongoing liability).	Moderate – historic but resolved; no current exposure.
Morgan Stanley Municipal High‑Yield Fund (MCHIX)	No pending litigation; routine audits.	Low – standard risk.

Result: Easterly’s legal risk sits at the top of the risk spectrum among its high‑income municipal peers.

4. Potential consequences for the fund and its investors

Consequence	How it might affect the fund	Likelihood (based on typical outcomes)
Direct financial loss (settlement / judgment)	Drag on NAV; possible reduction in distributions.	Moderate – depends on case strength; many securities‑fraud suits settle for 1‑5 % of NAV.
Legal‑cost accruals	Ongoing attorney fees, court costs.	High – legal fees can run into millions for a fund of this size.
Redemption pressure	Investors may sell out of fear of exposure, compressing liquidity.	Moderate – if the lawsuit receives wide publicity.
Reputational impact	May deter new capital or cause rating agencies to reassess fund’s risk profile.	Low‑to‑moderate – depends on resolution speed and communication.
Potential for class‑action recovery (if investors lead)	Could offset some losses; may improve investor sentiment if successful.	Moderate – many securities‑fraud class actions recover for a fraction of the claimed loss.

5. What investors should do (practical advice)

Read the Rosen Law Firm notice carefully. It will spell out the exact eligibility dates, claim deadlines, and required documentation.
Assess the fund’s risk‑adjusted return in light of the possible legal drag. Compare the fund’s current yield‑to‑worst and standard deviation against peers that have no litigation exposure.
Monitor fund disclosures (Form N‑CSR, N‑Q, and any “Special Notice” filings) for updates on the lawsuit’s status and any estimated liability the fund’s manager may have disclosed.
Consider diversification if the legal exposure materially changes your portfolio’s risk profile—e.g., shift a portion of the allocation to a high‑income muni fund with a clean legal slate (e.g., BlackRock BHRIX or PIMCO PHIMX).
Consult a tax/financial advisor about the possible tax implications of any settlement proceeds or NAV adjustments.

6. Bottom‑line comparison

Dimension	Easterly ROCMuni High‑Income	Typical High‑Income Municipal Funds
Legal exposure type	Active securities‑fraud lawsuit (fund‑level)	Mostly compliance / minor disputes
Magnitude of exposure	Potential multi‑million liability + ongoing legal fees	Usually modest, often limited to regulatory fines
Impact on performance	Possible NAV drag, distribution cutback, redemption pressure	Primarily market‑driven performance (credit & rate risk)
Investor actionability	Ability to lead a class‑action – potential recovery	Generally no direct recourse; only market response
Overall risk rating	Elevated / Above‑average	Standard / Low‑to‑moderate

Therefore, when you place Easterly ROCMuni High‑Income Municipal Bond Fund side‑by‑side with its peers, its legal exposure is considerably greater and adds a distinctive, non‑market risk component that investors must factor into any “high‑income municipal bond fund” comparison. The exposure is not typical for the sector, and until the lawsuit resolves, it will likely remain a price‑sensitive differentiator in the fund’s risk‑return profile.