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American Morning

Mutual Fund Ripoff

Aired November 04, 2003 - 07:09   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


BILL HEMMER, CNN ANCHOR: Estimates say investors put $7 trillion in mutual funds, 95 million Americans are invested. Now, there are widespread trading abuses coming to light in the growing scandal surrounding the mutual fund industry.
For more on this and what it means to you, Christine Romans now joins us to talk about it.

These numbers are staggering.

CHRISTINE ROMANS, CNN FINANCIAL NEWS: They really are, and lawmakers are sort of equating this to a pig at the trough. You know, the American investor puts money in and rich people got richer by managing these funds -- mismanaging these funds, and saying that -- essentially lawmakers saying abuses are pretty widespread.

Yesterday on Capitol Hill this was center stage. Let's talk about what the SEC has found in terms of how widespread all of this is.

Twenty-five percent of brokers engaged in late trading, 10 percent of fund companies allowed late trades, 30 percent of fund companies gave certain shareholders preferential treatment, like letting them know what their top holdings were and what kind of trades they were making. That's not fair. You can't do that.

The SEC regulators are looking at late trading, market timing. This is when you get in and out really quickly. There are instances of fund managers, people who are managing your money who are in there trading for themselves and their families, you know, which is against the rules for you and I to do. Sales practices that might be suspicious and volume discounts. If you're putting a lot of money into a mutual fund, you're supposed to get what's called a break point discount. You're supposed to get a discount on the loads you pay. And the SEC says that to the tune of $86 million in 2001 and 2002, you were ripped off.

HEMMER: Wow! You know, some of this -- there are a lot of small investors doing their own work on their own computers allowing them to trade late.

ROMANS: Yes.

HEMMER: That's against the rules. Can't do that. But, you know, the preferential treatment goes back to the IPO argument about giving your preferred clients preferential treatment when it comes to, well, getting a piece of the pie before it comes out publicly. ROMANS: Absolutely. You know, 95 million Americans have their money in their mutual funds. What are you supposed to do? Morningstar says you shouldn't put any more money into Putnam Investments. You saw its CEO leave yesterday.

HEMMER: Which is a heck of a statement, by the way.

ROMANS: Absolutely. And you're seeing fund outflows from Janus, from Strong, from Bank One funds, from funds that have been implicated by investigators in these sorts of shenanigans. So, you're seeing the little investor, you know, put his money where his mouth is. You need to go and take a very close look at everything you've got and see if you have any money in any of these firms, and then decide what to do next.

HEMMER: You're talking about investors, too, and investigating. Some say the lax enforcement of the SEC is to blame here.

ROMANS: And that's another issue.

HEMMER: Good deal. Christine, thanks. We'll talk to you a bit later.

ROMANS: Sure.

HEMMER: Good to have you in for Andy Serwer today again. Thanks.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.






Aired November 4, 2003 - 07:09   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL HEMMER, CNN ANCHOR: Estimates say investors put $7 trillion in mutual funds, 95 million Americans are invested. Now, there are widespread trading abuses coming to light in the growing scandal surrounding the mutual fund industry.
For more on this and what it means to you, Christine Romans now joins us to talk about it.

These numbers are staggering.

CHRISTINE ROMANS, CNN FINANCIAL NEWS: They really are, and lawmakers are sort of equating this to a pig at the trough. You know, the American investor puts money in and rich people got richer by managing these funds -- mismanaging these funds, and saying that -- essentially lawmakers saying abuses are pretty widespread.

Yesterday on Capitol Hill this was center stage. Let's talk about what the SEC has found in terms of how widespread all of this is.

Twenty-five percent of brokers engaged in late trading, 10 percent of fund companies allowed late trades, 30 percent of fund companies gave certain shareholders preferential treatment, like letting them know what their top holdings were and what kind of trades they were making. That's not fair. You can't do that.

The SEC regulators are looking at late trading, market timing. This is when you get in and out really quickly. There are instances of fund managers, people who are managing your money who are in there trading for themselves and their families, you know, which is against the rules for you and I to do. Sales practices that might be suspicious and volume discounts. If you're putting a lot of money into a mutual fund, you're supposed to get what's called a break point discount. You're supposed to get a discount on the loads you pay. And the SEC says that to the tune of $86 million in 2001 and 2002, you were ripped off.

HEMMER: Wow! You know, some of this -- there are a lot of small investors doing their own work on their own computers allowing them to trade late.

ROMANS: Yes.

HEMMER: That's against the rules. Can't do that. But, you know, the preferential treatment goes back to the IPO argument about giving your preferred clients preferential treatment when it comes to, well, getting a piece of the pie before it comes out publicly. ROMANS: Absolutely. You know, 95 million Americans have their money in their mutual funds. What are you supposed to do? Morningstar says you shouldn't put any more money into Putnam Investments. You saw its CEO leave yesterday.

HEMMER: Which is a heck of a statement, by the way.

ROMANS: Absolutely. And you're seeing fund outflows from Janus, from Strong, from Bank One funds, from funds that have been implicated by investigators in these sorts of shenanigans. So, you're seeing the little investor, you know, put his money where his mouth is. You need to go and take a very close look at everything you've got and see if you have any money in any of these firms, and then decide what to do next.

HEMMER: You're talking about investors, too, and investigating. Some say the lax enforcement of the SEC is to blame here.

ROMANS: And that's another issue.

HEMMER: Good deal. Christine, thanks. We'll talk to you a bit later.

ROMANS: Sure.

HEMMER: Good to have you in for Andy Serwer today again. Thanks.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.