While Martha Stewart's alleged infraction may have been "immaterial", it was very public. Difficult for the feds to ignore. She should have negotiated a deal and saved everyone a lot of time and money.
Spitzer Sees Fund 'Death Penalty'
Firms' Possible Demise Won't Deter Pursuit
By Carrie Johnson
Washington Post Staff Writer
Friday, November 21, 2003; Page E01
washingtonpost.com
New York Attorney General Eliot L. Spitzer yesterday told the Senate Banking Committee he would not hesitate to bring criminal charges against companies enmeshed in the widening mutual fund scandal, even if it drives them out of business.
Spitzer said he was especially concerned about companies that had broken securities laws in the past. "Where there's recidivism, whether it's a robbery or a street crime, there will be no second chance," Spitzer said. "It's fair to presume there will be criminal cases brought against firms. That may mean the death penalty for them. In my view that's the only option we are now left with."
Spitzer's remarks came just hours after his office and the Securities and Exchange Commission sued Gary L. Pilgrim and Harold J. Baxter, founders of the Pilgrim Funds, for allegedly profiting at the expense of their investors. The move was the latest in a series of enforcement actions that Spitzer, Massachusetts Secretary of the Commonwealth William F. Galvin and the SEC have brought to address abuses in the $7 trillion mutual fund industry.
"This is one of the biggest heists in the country," said Sen. Richard C. Shelby (R-Ala.), the panel's chairman, noting that 95 million Americans have investments in mutual funds. "This is millions of dollars involved. We don't know how much."
Spitzer and Galvin have been at odds with the SEC, which they criticized for too quickly entering into a settlement agreement with Putnam Investments on Nov. 13. At the time, Spitzer said the deal did nothing to address serious problems in the industry such as exorbitant and sometimes undisclosed fees that investors pay to management firms.
Yesterday, he lashed out at Putnam for allegedly charging individual investors fees that were 40 percent higher than fees paid by institutional investors, such as pension funds. Spitzer said that meant in 2002, average investors in Putnam's mutual funds paid $290 million more than institutional investors. "The fee issue is so pervasive and cuts so deeply to the heart of whether they are violating their fiduciary duty, that I do not want to settle with them unless and until we address that issue," he said. The fees in question covered management, tax compliance and other administrative costs.
But a Putnam spokeswoman said the comparison was faulty, since individual investors pay more in part because of Putnam's increased costs of complying with regulations and responding to inquiries from 12 million individual shareholders.
Separately, Spitzer and SEC enforcement chief Stephen M. Cutler sought to minimize their differences in remarks to the Senate, as Cutler stressed that they shared the same goals and continued to work together successfully on a number of ongoing probes. "I assure you, the commission is fully committed to ensuring that violators are promptly punished," Cutler said.
For his part, Spitzer called Cutler "my great friend and colleague," but later, in response to a question from senators about the next step his investigation would take, he jokingly told them Cutler had asked the same question that morning.
"Can I object?" Cutler asked, to more laughter in the hearing room.
Outside the hearing Cutler told reporters, "We've got, obviously, a lot of abuses. Week by week we'll be bringing a lot of cases. One by one we're going to knock them off. The SEC is well on the way . . . to cleaning up this mess."
© 2003 The Washington Post Company |
