March 31, 2008
A Fresh Look at the $5 Billion in Mutual Fund Restitution Money
With ink from the news of the 2008 Recession already drying in the textbooks and the Big Chill on Wall Street overriding Hookergate glee, it's time, as they say, to think outside of the box.
The $5 billion Eliot Spitzer amassed from mutual fund companies in the late-trading and soft-dollar scandals of 2003-2005, let alone the billions in fees sanctioned firms were forced to forfeit in the A.G.'s strong-armed settlements, is just sitting there. No one, not even the MIT and Ph.D. economics geniuses that have been brought in, can figure out how to properly assess and disburse the money to the investors who were harmed.
Throw out that debate, I say. It's a dead end.
Instead, let's go back to square one and ask ourselves, what was that money collected for in the first place? It was to repair damages done to the investor. And how much was each Main Street investor harmed, you may ask.
"Not much" has been the repeated and unanimous answer. Each person is due a check for between pennies and one to three bucks. Even large institutional investors stand to be reinstated less than $100 apiece.
So, let's step back once more and do some original thinking.
The federal government should take that $5 billion, just sitting around, and infuse it back into the mutual fund industry, where it belongs. That $5 billion belongs to each and every investor in the market-those with international portfolios that were vulnerable to market timing, as well as those who were completely oblivious to the profits being skimmed.
Take the money and give it back to the market at a time when the economy has never been so precarious in 100 years. Use it constructively to support a market that has been largely successful over the past several decades but is being dragged down by the credit crunch.
The Great Depression of 1929 didn't begin in that year, by the way. Almost to the date, there were political and socioeconomic events in both the first and second decades of the 20th century that led up to the market's 1929 freefall.
The government forced Spitzer out of the Office of New York State Governor for a reason. It paves the way for much reform.
Let one of the more critical and meaningful reforms be a revisitation and rewrite of the Securities and Exchange Commission's restitution laws.
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