Spitzer: No Settlement Without Addressing Fund Fees

November 26, 2003 (PLANSPONSOR.com) - If mutual fund companies under fire from New York State Attorney General Elliot Spitzer are looking to settle, they must first put into place structures to address the problem of high fees.

“There will not be settlements with me until companies assure me, through structural reforms, that fees will be addressed,” Spitzer said on CNBC’s “Capital Report,” according to Dow Jones.   Spitzer said such a measure is required for him for assurance that mutual funds are fulfilling their fiduciary duties to investors.  

“The entire governing structure of the [mutual fund] industry is flawed, and the primary consequence of that is that the boards of directors who are supposed to look out for the interests of investors, fulfilling their fiduciary duties to drive down fees, have been doing just the opposite,” Spitzer said in elaborating the need for such a system.

Spitzer’s demands could have a far reaching effect as he estimates at least half of all mutual fund companies were involved in market timing abuses.   While not illegal, market timing – the practice of rapid trading of mutual fund shares to profit from pricing lags– has led to some high profile departures at fund firms such as UBS (See  UBS Cans Two Brokers for Market Timing ),Bear Stearns Cos., Merrill Lynch & Co. and Putnam Investments (See Putnam Excuses Two More Fund Managers ).