Not long ago former SEC chairman Arthur Levitt warned that "America's investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask."
Now we find out it was an inside job ... no guns and masks necessary. They even smiled while they were secretly robbing us blind ... our own mutual fund managers, the very people we thought had a fiduciary duty to protect us.
But what's all the fuss, folks? This is old news; they've been doing this for years. They just got nabbed this time. Yet, suddenly the New York attorney general is everybody's hero.
"God bless Eliot Spitzer," gushed Stephen Cutler, head of the SEC's enforcement division, one of Chairman William Donaldson's minions.
"I commend the attorney general for helping to shine a bright light on the murky world of mutual fund fees," trumpeted sweet-talking Congressman Richard Baker.
What a bunch of phonies. The truth is, Baker, Cutler, Donaldson and the SEC hate Spitzer. For example, since July 19 Baker's been the hatchet man pushing a new bill specifically designed to cut the legs out from under Spitzer by limiting the enforcement powers of state attorneys general.
Except Spitzer beat them to the punch. Once again he caught them with their pants down, failing to do their job. They're red-faced, desperately trying to cover up their embarrassment. Now they're forced to take actions against big political donors that they have been protecting for years. But don't count on more than a couple of band-aids.
Their hypocrisy should fool nobody.
Nobody's protecting America's investors
Under all this drama, investors are being forced to confront a very nasty truth: nobody really cares about protecting us. That's really what this massive fraud has exposed. Nobody puts investors first. Not the SEC. Not Congress.
And certainly not your greedy fund managers. They see investors as docile "cash cows" to be milked at will by this huge, silent conspiracy, which favors and protects big political donors (like Wall Street and the fund industry) at the expense of America's 95 million Main Street investors.
Unfortunately, the Canary Hedge Fund fraud is only a minor symptom of the pervasive cancer eating away at the fund industry's "conspiracy of silence," as Jack Bogle calls it. Spitzer has only exposed one small corner of the festering, lethal scab gutting the integrity of the fund industry.
Congress did make a big show about reform earlier this year. It was a perfect opportunity for an investor revolution because massive reforms were on the table. But the public never got excited (like now). So the fund-industry lobby had an easy time quietly sabotaging it.
We've been following the drama closely. A year ago we reported on 25 conflicts of interest in the fund industry. Our list was prepared from information provided by several investor advocates, former Treasury and SEC officials and the work of Arthur Levitt, Jack Bogle and other power-players.
From January through July we followed the progress of the proposed Mutual Fund Integrity and Fee Disclosure Act as it moved through the House Financial Services Committee.
Then, at the eleventh hour, it fizzled. Bogle, who was initially enthusiastic, said: "If a journey of a thousand miles begins with a single step, I'd say this legislation still leaves us many hundreds of miles to go."
After Congress got its photo-op for the re-election campaign, the bill was tabled. Suddenly the sham was over. Congress simply passed the responsibility back to the SEC, which has been doing nothing about these matters for years.
We may get band-aids, but Congress and lobbyists have placed the industry beyond meaningful reforms, while greedy fund managers continue skimming money off the top.
SEC inaction protects big donors
Spitzer's latest move is no isolated bit of evidence. We've seen other signs that the SEC isn't interested in protecting Main Street investors. The fact is, SEC is either incompetent or secretly trying to undermine individual investors for purely political reasons. Neither scenario is encouraging.
Remember how Spitzer embarrassed the SEC by spearheading a $1.4 billion settlement with Wall Street's bad boys. The SEC wasn't doing its job prosecuting Wall Street's crooked analysts, so Spitzer stepped in and upstaged the SEC.
Then Spitzer brought charges against Morgan Stanley for failing to disclose that its brokers got extra payola for pushing their in-house funds. The SEC was nowhere on that issue either.
And last week even the Oklahoma attorney general got in the act, bringing charges against Bernie Ebbers, the CEO whose alleged criminal conduct brought WorldCom down.
I asked Jack Bogle what he thinks about this scandal. He's more optimistic than I am: "This scandal is for real, and will have a major and continuing impact on the industry. In a sense, it's a blessing."
But don't get your hopes up too high. The pressure to reform will blow over. And when the smoke clears the crooks without "guns and masks" will still be in control of our funds and money.
Money talks
Besides, there's just too much special interest lobbying money involved that's corrupting these insiders. Remember, Senators, Congressmen and the White House need money. And lobbyists want favors. Especially lobbyists working for fund managers with questionable ethics.
At most you'll see some noisy damage control to shut up Spitzer supporters. But mark my words, a year from now we'll be back to "normal" with the fund industry cheating investors by using clever new gimmicks. And they'll still be protected behind their secret "conspiracy of silence" by armies of politicians, lobbyists and a do-nothing SEC.
You watch: For the next few months Congress and the SEC will flood us with chest-pounding rhetoric about helping the little guy.
But in the end all they'll do is plug the two gapping holes exposed by Spitzer (illegal market timing and trading privileges given to the big-time players). Meanwhile, so many of the other 25 needed reforms will get lost in the noise.
Here's a final thought that's bound to gag you ... remember, this was an "inside job." That means all the huge sums of money the fund industry lobbyists are spending to buy protection from the politicians comes out of your pocket. How's that for irony.
I think this came from CBS Market Watch....I stole it from another board and I think he stole it from somewhere else...
AI
