WealthManagement Magazine

Spitzer Hints Scandal Is Winding Down

Eliot Spitzer may have fired the final cannon blast in his 27-month assault on the mutual fund industry. The crusading New York attorney general reached a settlement with Federated Investors last month that required the company to pay $100 million in fines, restitution and fee reductions for alleged trading abuses that bilked the long-term shareholders in its funds. The deal brought the total number

Eliot Spitzer may have fired the final cannon blast in his 27-month assault on the mutual fund industry. The crusading New York attorney general reached a settlement with Federated Investors last month that required the company to pay $100 million in fines, restitution and fee reductions for alleged trading abuses that bilked the long-term shareholders in its funds.

The deal brought the total number of fines levied against mutual funds and hedge funds by Spitzer's office to $3.3 billion and upped the number of firms punished to 14. To date, nine mutual fund executives have pleaded guilty to fraud and other related charges.

While Spitzer remains tight-lipped on the status of the industrywide trading investigation he launched in September 2003, he hinted that it is perhaps nearing the finish line. “With this agreement,” Spitzer said in a statement, “virtually the entire mutual fund industry has sworn off improper trading practices and agreed to compensate investors who were harmed.”

Spitzer, a Democrat, was much maligned by the industry for his tendency to prosecute cases in the press as opposed to a courtroom. Spitzer is still miles away from reaching his stated goal of wringing $10 billion in fines out of the scandal-tainted firms, but there figures to be more activity in the coming months. Scudder, The Hartford, Manulife and a string of others are still on the docket.

Still, the activity figures to be merely housekeeping as opposed to the unearthing of further transgressions. “There may be a few other cases still in the pipeline, but it is probably safe to say that everyone in the industry got the message a long time ago,” says Russ Ryan, a former director in the SEC's division of enforcement who is now a partner in the law firm King & Spalding in Washington, D.C. “So while some of the old cases probably still need to work their way to resolution, it is hard to imagine that the SEC and Mr. Spitzer are opening a lot of new cases to investigate recent conduct in this area.”

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