The trading scandal has put the Canadian fund industry through the ringer in the past year. But Investment Executive columnist James Langton believes that despite the precedent-setting cases and record $200 million in fines and disgorgement (US$166 million), investors have reason to remain dissatisfied.

Although the settlements stated that the eight fund companies charged garnered only $27 million (US$22 million) in revenue from the market timers, Langton charges that what the settlements do not mention is that the institutional investors who placed the trades reaped $300 million (US$248 million) in profit. Further, none of them have been penalized.

And while the Ontario Securities Commission initially spread a wide net when launching its investigation, probing more than 100 firms, it was nearsighted in the end by charging only eight mutual fund companies and announcing that its probe into market timing is over. Since the OSC launched its investigation, it has only sent a letter to one more fund company, Franklin Templeton Investments.

As Langton sees it, more Canadian fund firms certainly are guilty of market timing, as evidenced by the subsequent settlements between broker/dealers and the Investment Dealers Association of Canada in which TD Waterhouse alone admitted to market-timing arrangements with at least 20 fund companies. As well, Langton believes the OSC should have spelled out in its settlements that market timing is, in fact, in violation of the rules. Rather, the Commission simply said it was in breach of the principles of fairness.

At the least, one Canadian fund analyst says, the fund companies in the settlement were forced to pay more than seven times the amount they garnered in profits, which, in the grand scheme of things, were not that significant.

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