Word: spitzers
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Dates: during 2000-2009
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...fund industry, its trust breached, is now making all the right noises. Fink called the alleged abuses "outrageous" and urged all his group's members to review their internal procedures. Spitzer's investigation is far from over, though, and it may touch broadly an industry entrusted with $7 trillion of our retirement and other savings--a gargantuan sum that politicians will be eager to make a show of protecting...
...Spitzer's investigation, which like his stock-research probe has been based in large part on incriminating corporate e-mail, will almost certainly lead to additional inquiries about fund fees and the roles of fund directors. It may also lead to efforts to corral the largely unregulated and fast-growing hedge-fund world, which has $600 billion in assets. It's the hedge funds, investment vehicles available mainly to the wealthy, that sometimes roil markets with rapid trades of stocks, bonds and currencies and that appear to be the main clients that have traded mutual fund shares...
...heart of the Spitzer probe are two practices that, by some estimates, collectively bilk fund investors out of as much as $4 billion a year. One is late trading, which is illegal. Spitzer brought grand-larceny and securities-fraud charges against Theodore Sihpol III, a former broker at Bank of America, alleging that Sihpol helped Canary Partners, a hedge fund, place orders to buy and sell Nations Funds shares as late as 6:30 p.m. at the funds' 4 p.m. (closing) price. The scheme allowed Canary, which has settled its case with Spitzer for $40 million, to profit from intervening...
What should investors do in the meantime? "Stay the course," advises Spitzer, whose own family fortune rests in real estate. "The marginal cost to any one shareholder is slim." In the end, says Morningstar's Kapoor, you should invest in a fund company you trust. Find one, he says, that emphasizes "stewardship over salesmanship," that puts long-term shareholders first by keeping expenses low, that closes small-cap funds once they get large and that refuses to roll out gimmicky funds in hot sectors...
...newsletter No-Load Fund Investor. "Whatever the problems, mutual funds are still better than almost any alternative. If you think mutual funds lack integrity, try dealing with brokers, insurance agents, annuities salesmen or hedge funds." In other words, this black eye will heal, and maybe now industry executives, as Spitzer might say, will finally get it. --With reporting by Barbara Kiviat/New York City