WASHINGTON – Testifying before the financial management subcommittee of the Senate’s Governmental Affairs Committee, intrepid New York Attorney General Eliot Spitzer vehemently defended his $600 million settlement with Alliance and the anticipated $300 million-$350 million settlement pending with MFS.

Spitzer justified making fee reductions a part of the settlements with fund companies, saying that mutual fund boards had failed miserably in their fiduciary duties to shareholders.

He maintained that funds have been gouging shareholders through excessive fees for years. He rebuked them for their "complacency in the boardroom" and "inadequate disclosure" and said that it is this breach of fiduciary duty that set the stage for exorbitant fees. .

The NY A.G. gave hard numbers on advisory fees at Putnam and Alliance: Putnam charged fund shareholders $279 billion, or 40% more in advisory fees, than institutional clients in the last fiscal year, Spitzer testified. Alliance charged twice as much, which came out to be $200 million more in advisory fees than institutional clients in that time frame, he said.

"Consumers have been ripped off," Spitzer said.

As to the ICI’s recent analysis of fees in the sub-accounts of retail and institutional funds, Spitzer called the ICI report "misleading and wrong." The trade organization can’t pass the numbers off as being representative of the industry, he said.

Asked about the ICI lobbying interests, Spitzer continued: "The ICI has not been a voice for reform or the shareholders. Rather, it has been a voice for the status quo."

Paul Schott Stevens, a lawyer representing the ICI, countered that comparing retail and institutional is comparing apples to oranges. Retail products have thinner margins, he added.

Still, Spitzer did not back down, calling the industry’s analysis "seriously flawed."

Market Timer for Hire

James Nesfield, an outside contractor hired by Canary Capital Partners to find funds willing to market time, testified that it was his explicit job to find mutual funds willing to allow the firm to market time. He found more than 100 mutual funds willing to engage in this questionable activity.

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