April 02, 2004

Biggest scandal is only starting...

The governance scandal in Mutual Funds is now the biggest ever, according to an article Bear Stearns Faces U.S. Probes... on Bloomberg:

"Spitzer's probe into Canary marked the beginning of a regulatory investigation into sales and trading practices in the $7.6 trillion U.S. mutual fund industry that has led to the departures of some 80 industry executives and the imposition of more than $1.7 billion in penalties."

$1.7 bullion puts it past the $1.3 billion settlement in 2002 for email retention. That makes it the biggest financial scandal ever, by size of fines, at least.

And it's only just starting. Up until now it has primarily been the New York and other state AGs on the prowl, but now it's the Feds: the SEC and the US Attorney.

That means criminal charges, Federal judges, RICO, long jail sentences and a lot more fines. Also, for the first time, it seems, money market mutual funds are being targetted - these were conspicious in their absence in all the activities by the states. That means the Federal Reserve, as well, as the dollar funds act as dollar payment systems.

Some last year estimated fines of about $12-13 billion.in a 7 trillion industry. It's still a drop in the bucket of actual losses, which were estimated by some as about 10% of the value under management: so about $700bn.

Which funds are involved? The quiet money is on "assume all or almost all of them and you will be righter than any other possibility." That is, it isn't possible to work out without some form of divine knowledge, but proving that a given fund wasn't doing it has been harder than first thought.

For information on the detail and arisal of this scandal, check out Mutual Funds and Financial Flaws by James Nesfield and Ian Grigg, presented as testimony to the US senate hearings. See the more journalistic Governance or Regulation - You Pick? for a blog entry explaining the FC relevance.

Posted by iang at April 2, 2004 12:12 PM | TrackBack
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