What's Wrong with the Fund Industry
Our take on market-timing, late trading, and weak boards.
The mutual fund industry's squeaky-clean reputation has suffered some serious damage in recent weeks. New York Attorney General Eliot Spitzer's recent allegations of trading misdeeds at Bank of America, Janus, Strong, and Bank One have sent the industry reeling, causing some investors to question if they should continue to place their trust in mutual funds.
While the alleged abuses at Bank of America are by far the most serious, we've also been deeply troubled by the allegations surrounding Janus, Strong, and Bank One. If the Attorney General's accusations are true, these three companies may have violated their fiduciary duty to shareholders by enabling a hedge fund to engage in market-timing--a practice their funds' prospectuses explicitly said they would discourage.