INews: 2003 Scandals Changed Industry Forever
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Monday, September 09, 2013

INews: 2003 Scandals Changed Industry Forever

InvestmentNews' Jeff Benjamin reflects on where the mutual fund industry is compared to where it was 10 years ago this month, when it was embroiled in multiple scandals. Then New York Attorney General Eliot Spitzer charged Bank of America's Nations Funds of permitting "late trades," and more than a dozen firms eventually found fingers pointed in their direction as well.

The firms noted by the InvestmentNews reporter include Strong Capital Management, which was ultimately "absorbed by" Wells Fargo after allegations of market-timing. Putnam lost chief executive Lawrence Lasser, who resigned after his firm was implicated in after-hours trading.

Benjamin writes that other firms which faced charges, enforcement proceedings and fines were Alliance Capital Management, Columbia Management Advisors Inc., Edward D. Jones & Co. Inc., The Goldman Sachs Group Inc., Invesco Funds Group Inc., Janus Capital Group Inc., Marsh & McLennan Cos. Inc., Morgan Stanley & Co., Prudential Securities and Wachovia Corp.

Benjamin spoke to various fundsters to get their take on how it affected the industry and where the industry is headed now. Industry insiders had a wide variety of opinions on its importance with Steve Graziano, president of Touchstone Investments [profile] , saying to Benjamin, "My god it had such a huge impact. At the time, it made a lot of big headlines, so the public was alerted and their sensitivity was heightened."

Morningstar's Don Phillips was quoted as saying, "I think the impact was profound because this was an industry that always viewed itself as wearing the white hat."

Theodore Freight, owner of Creative Financial Design, was quoted as saying of advisor and fund industry trust, "That is what caused us to stop using mutual funds and go into exchange-traded funds…I don't think I could say with certainty that fund companies would never, ever again let some clients trade after hours like they did, and that's sad."

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