Subject: Personal Trading By Mutual Fund Portfolio Managers
July 28, 1998
Dear Editor:
Personal profiting by mutual fund portfolio managers is rampant throughout the mutual fund industry. Investigations of mutual fund companies have revealed that personal trading is commonplace and that the majority of personal trading violates applicable law. Personal profiting by portfolio managers results in significant, quantifiable harm to mutual fund investors; investors do not in any way benefit from manager personal profiting. There are portfolio managers who earn more through their personal trading than from managing client assets. Not surprisingly, the funds these managers are responsible for do not perform nearly as well as their personal accounts. Reassurances from the mutual fund industry that such abuses are not commonplace are hardly persuasive. The industry has consistently lobbied the Securities and Exchange Commission against the imposition of any substantive requirements in this area, including any meaningful disclosure obligation. Records of personal trading by portfolio managers, as well as violations of law caused by such trading, are required to be maintained internally by mutual fund companies-supposedly to protect investors. However, amazingly, under current law investors are never allowed to see such records. It is reprehensible that under current law brokerage clients are permitted access to the disciplinary histories of their stockbrokers, but mutual fund investors who have entrusted their assets to a manager, are denied access to comparable information regarding their portfolio manager. By opposing disclosure of the risks to investors personal trading by portfolio managers poses, as well as disclosure of portfolio manager personal trading records and, when all else fails, invoking the attorney-client privilege to prevent investors from learning of illegal personal trading, the mutual fund industry has been able to maintain the illusion that such trading is rare and investors are not being harmed. If investors could see how regularly fund managers profit at their expense, they would run, not walk, from many mutual fund companies.
Very Truly Yours, Edward A. H. Siedle, Esq
Setting Standards For The Investment Management Industry
