October 13, 2003

Under Pressure

Maybe Elliot Spitzer is fixing to run for Hillary Clinton's Senate seat (when she vacates). But I think a good question for him if and when he should run for office is why investigations always start with a bang and end with a fine. If it really is criminal conduct, how come so many firms get by with ponying up some cash and then getting back to business as usual? Will it be different this time? I can't reproduce all of it since it's copyrighted. But here's this bi from today's FT: "The widening inquiry has already led to criminal charges against two people: Theodore Sihpol, a broker at Bank of America, and Steve Markovitz, a former trader at the hedge fund Mill ennium Partners. But it has also implicated at least eight companies, with subpoenas being issued to several dozen more, and has spawned more than 20 lawsuits. Mr Spitzer's office is examining the transactions that took place between hedge funds engaged in improper mutual fund trading and their broker-dealers, including the use of complex derivatives. It is still not clear how these were used or whether they were illegal." If it turns out the transactions were legal--but just really stink--it's still bad news for the mutual fund industry. By now, most investors are suspicious of funds. Yet until recently, you just didn't have a lot of options if you wanted to do things differently. Even if you KNEW you were getting screwed on management fees and so-called diversification (not to mention the things you didn't know you were getting screwed on) what else could you do? They aren't perfect either. But I'm convinced that ETFs are a much tax-friendlier, more specified way of investing in particular ideas--and making money if you're right.


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