"Some of the Fund Under Investigation Will Go Bust"

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Elliot Spitzer "Some of the Funds under Investigation Will Go Bust"

 

FIRMS MAY GO BUST: SPITZER

 

By JENNY ANDERSON

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November 22, 2003 -- New York Attorney General Eliot Spitzer expects firms to go out of business as a result of the mutual fund investigation he launched in September, he told The Post late yesterday.

 

That stance is different from his approach to investigating major Wall Street brokerage firms for conflicts of interest in their research last year.

 

"The rules that have been violated have been clear; the criminal acts that we have seen evidence of are pervasive and beyond the pale," Spitzer told The Post.

 

"As a consequence, certain entities will face what boiler rooms and other similarly situated entities have faced - they will be prohibited from doing business."

 

Spitzer has been joined by the SEC, NASD and U.S. Attorney's office in its inquiry into improper mutual fund trading.

 

The investigations have rattled the $7 trillion industry, as evidence of wrongdoing among portfolio managers and mutual fund companies has emerged on a daily basis.

 

The investigation also includes the role of brokers who facilitated trades and hedge fund managers who were, in some instances, making the trades.

 

Spitzer also told a crowd at the New York Society of Security anal cysts that he expects "individuals will face criminal charges."

 

This week, the SEC and Spitzer filed civil fraud charges against Gary Pilgrim and Harold Baxter, founders of mutual fund company Pilgrim Baxter & Associates, for securities fraud.

 

The SEC and Massachusetts regulators filed civil fraud charges against Putnam and two of its investment managers related to market timing activities.

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Reuters

RPT-British watchdog probes UK unit trusts

Saturday November 22, 4:04 am ET

 

 

LONDON, Nov 22 (Reuters) - Britain's financial watchdog is investigating the nation's fund management industry after initial inquiries found it may be guilty of abuses now plaguing U.S. mutual funds, The Financial Times said on Saturday.

 

The newspaper quoted Financial Services Authority Chairman Callum McCarthy as saying that a "first cut" of inquiries had shown that the UK's 220 billion pounds ($374 billion) unit-trust industry might have fallen victim to market-timing abuses.

 

Market-timing is a short-term trading practice that can disadvantage ordinary retail investors.

 

"We're investigating to see whether there have been problems of (market) timing," McCarthy told the Financial Times in an interview.

 

"We have done a first cut, and that first cut has emphatically not given us the answer 'no, there is no prospect of this happening in the London markets.' We're therefore doing a second cut to try to establish the position more clearly."

 

Confidence in the $7.0 trillion U.S. mutual fund industry has been hit hard by cases of market-timing uncovered by investigators led by New York Attorney General Eliot Spitzer, famous for his damaging probe into the major investment banks.

 

Market timers -- often hedge funds -- rapidly trade in and out of mutual funds to take advantage of inefficiencies in how funds are priced. This hurts long term investors by raising fund costs and thereby reducing investment returns.

 

The probe has also focused on trades made at closing prices of the day before, which is illegal

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The predator class has existed in all countries, in all times. The degree to which they are allowed to prey, the level of corruption and indifference in a society, is the varying factor. Satan does not grab you against your will, but slips his fingers one by one into your hand, whispering subtle compliments and enticements in your ear, how you are misunderstood, it is not your concern, it is beyond your responsibility, it is the other fellow's problem and not yours, until he has you firmly in his grasp and you are his.

 

 

The Predator Class - Dick Meyer

 

 

The Predator Class

WASHINGTON, Nov. 19, 2003

 

 

This Against the Grain commentary was written by CBSNews.com's Dick Meyer.

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The stock market boom of the 1990s, the proliferation of 401(k) plans and the mass use of mutual funds so greatly increased the number of Americans who own equities that a new demographic term was born: the investor class.

 

The emerging accounts of thievery in the world of mutual funds confirm, for me at least, something I have suspected since the go-go 1980s -- the existence of an economic predator class.

 

I believe there is now a professional, well-trained elite, supported by large institutions, that is adept and willing to use corrupt practices to accumulate wealth. Despite assurances from game-theorists and anthropologists that the criminal cadre in the species remains a constant percentage over time, I believe today's mainstream, sanitized, and institutionally sanctioned financial crime rackets are being run by a new breed of crook. There have always been scandals and crooks in the history of American money, but our predator class is a distinct creation of the late 20th century.

 

I believe there is no way the counter-class made up of regulators, watchdogs and do-gooders and hack columnists can match wits with the predator class. Today's piles of money are so huge, great fortunes can be amassed by swiping the tiniest of slices in the wiliest of ways long before picked pockets are discovered.

 

I also believe that my darling baby-boom generation and our successors in gens x and y, reared in raised consciousness, righteousness and me-first, are probably to blame.

 

The docket of this still running corporate crime spree has grown far too long to be dismissed as either a passing fluke, a few bad eggs or as regularly scheduled financial event. It is a more permanent condition of commercial culture. And it is barely scorned.

 

It is partly, of course, simple Wall Street and boardroom greed, a cousin to the greed and gargantuan rewards in entertainment and sports. It is partly the degradation of professional standards, of the concept of the fiduciary, akin to the same market-driven devolution in divergent fields such as medical care, Hollywood, publishing and, yes, journalism.

 

My guess is that financial historians will start the clock in this epoch with the big merger scandals of the 1980's -- Ivan Boesky, Michael Milken and scads of lesser cads. Next came the long running, now forgotten, S&L scandals. Then a lull (maybe), punctuated by the pretty picture of the tech boom. That delusional portrait was been redrawn when we learned of the rigged IPO's, insider trading, completely corrupt "analysis" practices at the Wall Street giants and old-fashioned flimflam.

 

Coveting the vast instant riches of the techno-boomers and baby billionaires was way more than many titans of less glamorous industries could bear and in virtually all companies executive salaries soared beyond all proportions of the post-war era. And in many of those executive suites, greed morphed into felony -- Tyco, Enron, Rite-Aid, Adelphia, Global Crossing, WorldCom, ImClone, Lucent, KMart, MicroStrategy, Qwest Communications. And then scandals at the supposed auditors, like Arthur Andersen, insulted the injury.

 

As the market turned down, the corporate crime spree didn't wane as some theorists said it should. Hot stocks, IPO's, M&A were no longer where the Willy Suttons with MBAs, Turnbull & Asser shirts and Patek Philipe watches saw the money. They saw it in those huge piles of money accumulated by working people for savings and retirement -- corporate pension funds, public pension funds, 401(k)'s and mutual funds. Who would notice a few mil or bil siphoned off in arcane late-trading deals? They'll never know what hit them.

 

So, pension funds were raided, an entirely legal scandal. And now we're learning about the mutual fund grifting rampage that may affect Main Street as much as prior fiascos: Putnam, Alger Management, Bank of America, Morgan Stanley, Strong Capital Management, PBHG Funds, Bank One Corp., Alliance Capital, Janus Capital Group are some of the implicated names.

 

So now we'll be told that the market, smarter than any deliberately organized system, will correct this. After all, who would invest in a known corrupt game? No one, so the market will make fix it. Plus, the regulators are on the case.

 

This time, I don't buy it. The predator class will not be exterminated by cease and desist orders, Senate hearings, independent boards of directors and the invisible hand. It's a culture. And essentially, it's our culture.