Fear and greed are what drives Wall Street. Just because the mutual fund industry serves the higher calling of providing for the retirement security of 95 million Americans, it appears to be no better than the next hypocritical analyst, commission-hungry trader or manipulative investment banker. Greed is greed. Even in the fund industry.

If New York State Attorney General Eliot Spitzer's charges that late trading and undisclosed market timing are as widespread as he says they are, investors could - and should - rise in arms, bringing to bear the fund industry's first true scandal. There will be an ongoing, aggressive probe now that the SEC has asked every fund company to supply it with policies on market timing and late trading. While the first practice is unsavory, as it leads to higher costs, tax inefficiencies and, often, redemption fees that penalize all investors, late trading is out-and-out illegal. Both practices profit the arbitrageurs with billions of dollars a year at the expense of long-term investors. As Spitzer said it himself: Canary Capital Partners is only the beginning. People are going to go to jail for this.

Congress' investigation into fee transparency, revenue sharing and soft dollars hasn't hit a nerve with the investing public. Perhaps it is just too complex, too dry. But an investigation into a shady fund scam that allowed Edward Jonas Stern, scion of a family pet food and real estate empire worth $3 billion, to take advantage of market inefficiencies and break the law by buying a fund's NAV after the market close is a true scandal. It even has an e-mail trail of fund executives salivating at the prospect of getting their hands on Stern's money. People can identify with such salacious details. The media can play them to the hilt. And investors can become outraged. They've already begun. Shareholders of all of the funds Spitzer caught red-handed have already begun lawsuits, and more will surely follow.

Spitzer's investigation is vaguely familiar. Not so long ago, another New York attorney general as ambitious as Spitzer, if not more so, took down Drexel Burnham Lambert and Michael Milken with it, after politically jousting with the SEC for credit on the case. This time, Spitzer has the power of the SEC on his side.

If Spitzer is correct, that a number of funds broke the law to boost assets under management and collect fees at the expense of reduced returns for other investors - then the fund industry is proving it is a true member of the Wall Street boys' club.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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