The current probe by the SEC suggests that the US mutual funds industry is no longer scandal free. This calls for remedial measures to eliminate market timers' advantage.
The
US mutual funds industry, which had remained free from
financial scandals until now finds itself straight in
the sights of New York Attorney General Elliot Spitzer
who investigated the Wall Street investment banks. An
investigation of a number of fund companies is being
carried on for practices that may be unethical or illegal.
Certain mutual funds, high net worth investors, broker-dealers
were found taking advantage through late trading and
post market close news, and these practices were found
to be illegal.
The
complete dimension of the mutual fund scandal is still
far from known. So far, only four of the country's nearly
800 mutual fund companies have been named. As for now,
the investigation is targeted towards Bank One Corp.
Funds, Bank of America's Nation's Funds, Janus Capital
Group and Strong Capital Management for illegal trading
deals with hedge fund managers.
Spitzer's
recent allegations on trading misdeeds at Bank of America
being the most serious, Janus, Strong and Bank One,
have been the cause for some investors to question if
they should continue to place their trust in mutual
funds. If the accusations happen to be true, these companies
may have violated their fiduciary duty to shareholders
by enabling hedge funds, high net worth investors, and
most important of all mutual funds to engage in market
timinga practice the funds' prospectus plainly discouraged.
Market timing deals with taking advantage of small discrepancies
between the closing price and early stock movement the
next day. The net asset value of the shares set at each
market close sometimes does not represent the actual
market value, allowing traders to profit by buying shares
after the market closes and selling them the next day. |
