'Heads should roll' at the SEC, says NY Attorney General Spitzer

The Securities and Exchange Commission found itself in the hot seat at a Senate hearing yesterday for failing to act sooner to clean up the mutual fund sector.

Charges against the industry range from illegal—including 10 percent of the fund firms that allegedly have participated in late trading, which allows favored investors to trade after the 4 p.m. deadline-to questionable, including marketing timing, in which larger, more savvy investors trade in and out of a fund quickly to make a better profit. These trades run up brokerage costs for all investors, penalizing smaller investors in particular.

Three hearings are scheduled this week to look at mutual fund industry practices. The Los Angeles Times reported that bipartisan support is coming together in the House to expand a mutual fund reform bill sponsored by Rep. Richard H. Baker (R-LA) that was approved in committee in July but was kept from a vote of the full house by industry opposition.

"It is appalling to me that these practices, which benefit a select group of individuals at the expense of the vast majority of mutual fund investors, continue," Sen. Susan Collins, R-ME, head of the Senate Governmental Affairs Committee, said at a hearing by the panel. "I question why the Securities and Exchange Commission ... has failed to detect these practices, to impose appropriate restrictions on them, or to penalize those who appear to be misusing investors’ money."

New York Attorney General Eliot Spitzer has been leading the charge to clean up the mutual fund business and he testified at Monday’s hearing. Last week he said "heads should roll" at the SEC for its failure to act quickly to address a tip that market-timing trades were occurring at Putnam Investments.

"If I had been the head of the bureau overseeing the mutual fund industry for the past year," he told the New York Post, "I would resign."

The SEC acknowledged it could have acted more rapidly, but questioned the political motivations of Spitzer, a likely gubernatorial candidate.

"This should not be a competitive situation between regulators," SEC chief William Donaldson said. "The spectacle of one regulatory agency criticizing another is not healthy."

There were shakeups in the industry even as the regulators resorted to trading barbs. Putnam Investments CEO Lawrence Lasser was fired today by parent company Marsh & McLennan because of his role in the trading scandal, Reuters reported, adding that Putnam funds have seen at least $4.3 billion pulled out by state pension plans since Lasser was implicated last week. This weekend Strong Mutual Funds Chairman Richard Strong resigned after allegedly making more than $500,000 by way of alleged improper share trading. Spitzer has said he will prosecute Strong.

You may like these other stories...

By Jason Bramwell, Staff Writer CPAs in New Jersey, New York, and Pennsylvania believe economic conditions in the United States will likely be the same one year from now, and while they predict higher business revenues...
By Jason Bramwell Managers in accounting, finance, and IT are cautiously optimistic about their hiring plans for the fourth quarter of 2013, according to a new hiring outlook survey from staffing firm Brilliant. ...
By Jason Bramwell CPA firms in 2012 posted their first respectable increases in revenues since before the start of the recession; however, professional staff turnover last year rose approximately 50 percent across the...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.