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Fund Forward

The Never-Ending Fund Trading Scandal

Fines, being barred from the industry and even facing years behind bars evidently won't deter some market timers looking for a quick, sure buck.

Sixty-nine percent of fund directors and 55% of fund executives say some investors will continue to market time funds, regardless of redemption fees on short-term trades. As PFPC Senior Vice President Peter Rigopoulos puts it, what's a 2% fee on a 10% or 12% profit?

This is according to a survey of 57 independent board members, 44 affiliated board members and 53 fund executives, commissioned by PFPC and PNC Financial Services Group and conducted by Artemis Strategy Group.

Of course, unlike the original market-timing and late-trading scandal in which scores of fund companies were found to have been in cahoots with market timers, those surveyed are putting the blame on unscrupulous people outside fund companies.

But it would be dreadful for the industry's reputation as a whole if a new spate of market timing is uncovered. Here we are four years later, and the Securities and Exchange Commission is still continuing to bring market-timing cases forward, mostly against individuals and hedge funds. Could we stand another four years of scandalous news?

Although the general press never picks up on these cases, and even the financial media appears to have become jaded and nonplussed about them, if it becomes apparent that market timing continued after 2003 when former New York Attorney General Eliot Spitzer unearthed this whole scandal, the mutual fund industry will appear grossly negligent at protecting its shareholders.

If as many as 69% of fund directors and a majority of fund execs believe market timing will continue, there's a danger that it may still be going on even right now.

Obviously, PFPC and PNC commissioned the study to prompt customers that aren't already up to speed on complying with Rule 22c-2 by the Oct. 16 deadline to do so. There's a vested interest here.

But it's a realistic warning over the bow that fund companies must be vigilant about market timing, late trading-or any new manipulation of the market yet to be invented.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com

Recent Posts

Mutual Funds Must Go High-Tech-v. 3.0

Over the last number of years, mutual fund transfer agencies and shareholder communications companies have tried to convince shareholders to accept paperless summary prospectuses, proxies, trade confirmations and electronically stamped signatures. Fund supermarkets and web home pages have broadened their horizons to include market commentary, videostreaming and personal financial news. At the same time, exchange-traded funds, funds-of-funds, hedge FoFs, unified managed accounts, target dates, 401(k) auto enrollment and heightened awareness among people throughout the country of the difficulties of being retired-have taken off.

Test of the Massey Mine

Fund giant boards of directors at AllianceBernstein, American Funds, Fidelity, Vanguard and others are reportedly starting to bring about meaningful change in the corporations in which they are invested. Proof should come any day now, when the shareholder proxy votes from the annual meetings are released. Fund chief executive officers spoke about the power and influence their proxies wield in an interesting Reuters article last week, "Mutual Funds Seek to Shed 'Rubber Stamp' Tag."

Milestones

In 2011, 401(k) plans will turn 30, but the milestones the mutual fund industry has reached in this time are but a nanosecond in the history of U.S. retirement policy. Executives we interviewed for this special edition of Money Management Executive for the Investment Company Institute's meeting in Washington, speak to important milestones of the recent past and into the future. Look inside for observations and forecasts by Ted Benna, Robert L. Reynolds, Dan Fuss, David C. John, Steven Miyao and others.

At Age 30, It's Time for a Revamping for the 401(k)

This year marks the 30th anniversary of the 401(k), the revolutionary retirement savings vehicle that has been annihilating pension plans, empowering individuals to take part in the stock market-and, sadly, that left retirees with the misfortune of leaving the workforce in 2000 or 2008 very badly off. The cracks in the system are prompting many asset managers, regulators and retirement experts to take a hard look at 401(k)s and how they can be fixed.

Index of Posts

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Lee Barney

Lee Barney served as editor of Money Management Executive from 2002 to 2010. Previously, at United Media’s Wall Street & Technology magazine and Risk/Waters Information Services, she covered financial IT. For TheStreet.com, she wrote the daily “Meet the Street” column covering a broad spectrum of market-moving events. Lee began her career as a reporter in Tokyo with The Japan Times and was executive editor of Spotlight magazine.