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Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship by John A. Haslem, Ph.D.

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CHAPTER 15
The Challenge to Mutual Fund Stewardship
JOHN C. BOGLE Founder, The Vanguard Group, Inc., and President, The Bogle Financial Markets Research Center
 
 
 
Ever since the first of the mutual fund scandals came to light shortly after Labor Day 2003, the circle of fund organizations involved continued to grow. Ultimately, more than a score of firms have been implicated in some form of illegal late trading or unethical international time-zone trading in mutual fund shares. The charges brought by former New York Attorney General Eliot Spitzer, Massachusetts Secretary William Galvin, and the Securities and Exchange Commission (SEC) have been settled. The settlements resulted in substantial and well-deserved financial penalties imposed on the managers.
Make no mistake about it. Most of the firms involved in the scandals are major industry participants. Their aggregate fund assets of nearly $1.2 trillion represented nearly 20 percent of the industry’s then-$7.2 trillion total in long-term assets. As the scandals unfolded, investor reaction turned from incredulity to revulsion, and then to self-defense, with rising share liquidations at the firms that were affected. Even the firms that have so far received only subpoenas for information seem cautious about declaring their innocence, for it turns out that virtually all 401(k) transactions take place long after each day’s 4 P.M. cut-off time for executing orders. What is more, one of the two prime clearinghouses for these transactions ...

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