More evidence of crony capitalism

[The Backlash Cometh]

Mutual Funds Allowed Fraudulent Trading, Spitzer Says

Just six months after reaching a settlement with investment banks over tainted research, Eliot Spitzer, the New York attorney general, said today that major mutual fund companies had engaged in fraudulent after-market trading practices with privileged institutional investors.

The attorney general made his claims in announcing a settlement with a hedge fund investor who Mr. Spitzer said had set up an operation with Bank of America's mutual fund division that allowed him to buy and sell mutual fund shares after the market had closed and then trade them the next day for a substantial profit.

The investor, Edward J. Stern, who manages a hedge fund called Canary Capital Partners, has agreed to settle with Mr. Spitzer's office, returning $30 million in profits and paying a $10 million penalty.

In his complaint, Mr. Spitzer's office also said Mr. Stern and officials at Bank of America's mutual fund division had engaged in market timing, in which investors buy and sell shares for short-term benefit.


Mutual fund companies discourage such behavior in their prospectuses by charging extra fees to investors who try to take advantage of such pricing anomalies.

More at:

http://story.news.yahoo.com/news?tmpl=story&cid=68&ncid=716&e=17&u=/nyt/20030903/ts_nyt/mutualfundsallowedfraudulenttradingspitzersays

[The Backlash Cometh]

1. Just as I thought. Nobody actually looks in Economic Issues.

A great article that explains how cronies are allowed to buy after the market closes and sell the following day for a quick profit, and nobody is listening.

[German-Lefty]

2. Who would want trade money with them.

The market is zero sum. If I let a bunch of cronies trade over the counter with me at night, what's the big deal?

They either rip me of or I them. Who cares?

I think this is just an emotional reaction to the proffesional traders always reacting faster than them.

[The Backlash Cometh]

3. Where is the money for the profits REALLY coming from?

*

[camero]

4. This is why I have never invested in a 401(k)

I figured my money would be too ripe for the taking so to speak. I had a boss once who started a 401(k) and not much later lost most of the funds on a money losing land deal.

This to me is just as responsible for the scandals because it just gave the greedy more to be greedy with. It's time to go back to traditional pensions.

[German-Lefty]

5. Opps yeah, well in this case the fund is screwing itself (share holders)

People at the fund are screwing the fund out of money. In the long term you'd think a bank would clean up it's own act since nobody would want to invest in a thier funds if they loose money.

It's like embesselment. A company should clean up it's own act, but of coarse sometimes outside help is needed.

My point is just that institutions can't "make money" secretly trading with each other, since the money has to come from somewhere. People get upset when the see institutions being able to trade Enron stock around while they're locked out of the market. My point was that it doesn't matter too much.

What institutions can do is manipulate market prices and manipulate the politics of the companies so that they don't act in their interest.

[The Backlash Cometh]

6. Unfair advantage to some shareholders over others.

The problem with allowing some preferred cronies to buy after the market closes is that they have access to late breaking news so they can make safer bets and buy at "yesterday's" prices. Then, in the morning, when the stock jumps up in early trade because the news has spread around and investors are buying, the cronies sell and make an instant profit. This is fraud committed on us little investors.

That's why we need regulation. Because the corporations aren't really doing a good job of self-policing. "Self-policing" is another one of those euphemistic and oxymoronic words that amuses.

[camero]

7. You're right

I think it smells of insider trading. Boesky-style.