The notion that the fund scandal is all but over has been gaining steam in the general press and among some in the industry recently, but the reality is that while it has been a long, hard nine months, the mutual fund industry is far from out of the woods. Disinterest should not be mistaken for inactivity.

The general press has apparently grown tired of the steady flow of fund abuse cases coming through the pipeline. In fact, New York's pit bull regulator Eliot Spitzer may even be starting to yawn at the prospect of attacking more fund complexes. Spitzer has said that the scandal may have peaked, and Stephen Cutler, the Securities and Exchange Commission's director of the division of enforcement, indicated the worst of the market-timing and late-trading portion of the scandal is likely past.

However, Cutler recently told The Washington Post that he believes the SEC has "broken the back" of timing and late trading, but since the investigation extends to all areas of the mutual fund business, the SEC is "not yet through the middle innings when it comes to some of the other mutual fund issues."

While the industry is obviously not free and clear yet, the media coverage of the remaining complaints may understandably dwindle, as it has already trended with the Janus and Strong settlements. It is the nature of the news business to chase the next hot topic.

Everything is relative. The worst may be behind us because it hardly seems it can get any more disastrous for an industry that once, not-so-long ago, prided itself on its squeaky-clean image. When Spitzer unleashed his bombshell on the industry last September, many originally theorized it was a matter of a few bad apples spoiling the bushel. But that notion was quickly quashed when more and more firms were revealed to have been involved in illegal or, at best, questionable deals.

The fund industry has seen half of its top 25 houses involved in regulatory actions and more than $2.3 billion in fines, restitution and in agreements to lower fees. A large number of the heavy hitters in the industry, including Bank of America, Putnam, MFS and Alliance, have settled. One fund executive, James Connelly, formerly with Fred Alger Management, is in jail for destroying evidence. Countless industry representatives have been paraded before Congress, which itself has a number of fund industry reform proposals pending. The initial shock value of Spitzer's highly inflammatory comments and the revelations of the callousness with which average investors were treated is hard to surpass.

But let's not forget five key facts that will ensure the scandal will continue to remain relevant and loom over the industry for some time to come.

Timing, Merely Phase One

The first and most obvious is the conclusion of the remaining cases from the initial phase of the investigations into market timing and late trading. It is expected that Bank One, one of the initial four firms named in Spitzer's case against Canary, will settle soon. Conseco and Invesco Funds are also reported to be nearing deals, as well. However, there are other cases that could potentially drag out, such as Pilgrim Baxter, and Cutler noted there is a backlog of cases at the agency.

While it appears that Spitzer's new focus is recouping the excessive salary paid to former NYSE head Dick Grasso, there are other state regulators who may throw their hats in the ring, and this could prolong the initial phase of the scandal. For example, in a May regulatory filing, Putnam indicated that it had received subpoenas from the Florida department of financial services, a pair of regulators in West Virginia and the securities division for the state of Vermont in relation to market-timing activity, charges the firm has already settled with the state of Massachusetts and the SEC.

Sales Practices, Phase Two

Secondly, the investigations opened the door for regulators to take aim at all the things that are wrong with the fund industry. Pay-to-play practices, as well as directed-brokerage and side-by-side management of mutual funds and hedge funds are all areas that are sure to get increased attention once market-timing and late-trading abuses have been put to bed.

Some expect the second wave of the scandal to shift from the East Coast to the West Coast. As well, many of the probes are largely expected to look at deals between the brokerage community and fund firms.

Jailhouse Rock

Third, a number of fund executives have been criminally charged and are currently in limbo. As those cases go to court or reach a settlement, the implications will have a wide-ranging impact throughout the industry. The highest-profile case so far has been that of former Bank of America broker Theodore Sihpol III. Sihpol has been indicted and is scheduled to go to trial early next year. He is facing up to a quarter century behind bars if convicted.

There are others, too. Former Security Trust Co. executives Grant Seeger and William Kenyon, as well as Canadian Imperial Holdings' former managing director of equity investments Paul Flynn and Mutuals.com's Richard Sapio, Eric McDonald and Michelle Leftwich, all face serious charges.

Time for Change

The SEC is in the midst of trying to find reasonable and effective solutions to the problems that have surfaced in the last year. This is no small task and will undoubtedly sap significant time and resources from both the Commission and the industry. In the meantime, there is sure to be endless debate about the need for such reforms, the ability to implement such procedures, and whether or not they address the underlying problems in the industry or just treat the symptoms of the diseases we're seeing.

Insult to Injury

Lastly, the scandal won't be over until fund firms stop feeling the impact on their wallets. Besides assets continuing to slide out the door at many tainted shops, firms have to contend with class-action lawsuits brought by angry investors and bloodthirsty lawyers looking to regain losses and some trying to make a quick buck. The damages in lawsuits could mount and add a whole other dimension to the scandal, one that is a wildcard at this point.

While some may claim the scandal is slowing, don't get caught up in the hype. The cases may no longer make for the same kind of radical headlines or even capture the interest of the mainstream media like Spitzer did when he paraded the e-mails of former Janus International CEO Richard Garland before a crowded room of reporters in lower Manhattan. The lack of flair doesn't mean the scandal is burned out. The first phase of the scandal may be winding down, but who said there was only one phase?

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