InvestorQ : Which is the biggest scandal of a mutual fund?
Ira Shah made post

Which is the biggest scandal of a mutual fund?

Answer
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divya Sing answered.
1 week ago


I assume you are referring to the mutual fund scandal that took place in the United States in 2003. It began in 2003 with a complaint by New York Attorney General Eliot L. Spitzer charging Bank of America Corp.’s Nations Funds with allowing a hedge fund company to “late trade.” Several mutual fund firms, investment banks, and hedge funds were implicated in “market timing” and illegal late trading of mutual fund shares. These practices are said to have benefited an elite group of investors and fund managers at the expense of millions of small investors.

The US Securities and Exchange Commission (SEC) and state regulators in New York and Massachusetts brought charges against firms such as the mutual fund giant Putnam Investments, the brokerage firm Prudential Securities and a series of smaller mutual funds companies. Individual brokers and executives at some of these firms faced criminal charges, while the mutual funds themselves faced civil fraud charges. By the time the investigations by Mr. Spitzer and the Securities and Exchange Commission wound down, more than a dozen fund companies agreed to $3.1 billion in fines, institutions, and fee cuts. 

The crisis erupted in September when New York attorney general Spitzer alleged that four mutual fund companies had struck illicit deals with Canary Capital Partners, a New Jersey hedge fund. Spitzer charged that Bank of America's fund business allowed Canary to trade several funds after the markets had already closed at that day's prices. Known as "late trading," this illegal practice allowed Canary to trade on after-hours news (such as earnings announcements) at before-closing prices. Spitzer also alleged that some Fund houses allowed Canary to quickly jump in and out of their mutual funds to make a fast profit, a practice known as "market timing."