State, Federal Investigations Demonstrate ‘Fundamental Unfairness’ in Mutual Fund Industry

NASAA Urges Congress to Strengthen Mutual Fund Legislation

WASHINGTON (November 4, 2003) — The nation’s top state securities regulator today praised the efforts of state and federal regulators as they advance ongoing investigations into trading practices in the $7 trillion mutual fund industry and urged Congress to strengthen legislation to protect the nation’s 95 million mutual fund shareholders. The following is a statement by Ralph A. Lambiase, President of the North American Securities Administrators Association (NASAA) and Connecticut Securities Director, regarding the ongoing investigations of the mutual fund industry by state and federal regulators.

“The ongoing investigations of mutual funds by state and federal regulators clearly demonstrate that some in the mutual fund industry are putting their own interests ahead of America’s 95 million mutual fund shareholders. These shareholders have entrusted their retirement, college and other long-term savings to mutual funds. They deserve to be treated equally and honestly. Instead, abusive mutual fund trading practices, such as “market timing” and “late trading” uncovered by state officials, demonstrate a fundamental unfairness and a betrayal of trust that hurts Main Street investors while creating special opportunities for certain privileged mutual fund shareholders and insiders.

“State securities regulators are actively pursuing additional inquiries into mutual fund improprieties and are committed to aggressively addressing mutual fund complaints raised by investors in our jurisdictions. Enforcement actions resulting from these inquiries, combined with those of our federal counterparts, are necessary steps in our shared effort to restore investor faith and confidence.

“The investigation of mutual fund trading practices launched by state and federal officials demonstrate both the value-added benefits of state securities regulation and the complementary relationship between state and federal regulators. As the local regulator, we are quick to respond to all investor complaints, whether signaling widespread abuses, such as in the mutual fund investigations, or more local violations. As regulators, whether state or federal, we have an obligation never to lose sight of our responsibility to ensure that our investors are treated fairly.

“Ensuring the protection of mutual fund shareholders and restoring investor confidence involves more than regulatory enforcement efforts. Congress also plays a vital role. For example, earlier this year, Congress spotlighted abusive practices in the mutual fund industry and the House Financial Services Committee approved the Mutual Fund Integrity and Fee Transparency Act of 2003 to strengthen mutual fund disclosure and governance. In light of the recent criminal and civil charges brought by state officials, as well as civil charges brought by the SEC, I urge Congress to strengthen this legislation when it is considered by the full House of Representatives.”

For More Information:
Bob Webster, Director of Communications
202-737-0900

2003 Headlines, Newsroom