Improper trading – once virtually unreported upon in the mutual fund industry – has been admitted to by half the companies questioned about it by the Securities and Exchange Commission, The New York Times reports.

Market timing, the legal but frowned-upon practice of allowing certain investors to quickly trade in and out of funds for instant gains, is something that 44 of the 88 companies who’ve received letters from the SEC have done. And that includes some firms whose own policies clearly disallow the practice.

Not as many companies have admitted to late trading, an illegal scheme that lets investors buy funds after the 4 p.m. market closings at earlier prices. Nonetheless, the SEC and New York Attorney General Eliot Spitzer are both looking into that, as well.

The wide-ranging probes have prompted many industry experts to predict an overhaul to the mutual fund industry, including the banning of market timing and rule changes regarding the composition of fund boards.

John A. Hill, a board member of Putnam Investments, which recently fired four fund managers for improper trades, conceded his company’s policies "have not been perfect" but said Putnam has already taken steps to prevent any further imperfection.

Many companies have followed Putnam’s lead, taking these types of pre-emptive steps before Spitzer’s and the SEC’s probes dig deeper.


The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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