Nov. 23–The attitude of some Las Vegas investors on the mutual fund scandal can best be summed up in the title of the 1968 Clint Eastwood movie, “Hang ‘Em High.”
Others think the title of a Shakespeare play, “Much Ado About Nothing,” better describes the situation.
Eliot Spitzer, New York’s attorney general, captured national attention in early September when he threw the spotlight on the nation’s latest financial scandal — allegedly improper trading at many mutual funds. He announced finding “widespread illegal trading schemes that potentially cost mutual fund shareholders billions of dollars annually.”
And although Woodrow Smith, president of the local chapter of the American Association of Individual Investors, is glad the matter is being investigated, he said he hasn’t seen a stream of investors bailing out of mutual funds because of the scandal and the investigations that have followed Spitzer’s announcement.
“If you were looking to an individual account, it’s a few dollars per account. I’m not concerned,” Smith said. “When you break it down to millions of accounts, you’re not talking about a lot of money.”
A retired Henderson investor, Harvey Cohen, however, sees the mutual fund scandal as yet another example of rampant corruption on Wall Street.
“I hope Spitzer buries them, and some of these people do time,” Cohen said. “I think there are going to be more bombs coming.”
Barbara Hemenway, another Las Vegas mutual fund investor, agreed. “I hope they nail them, and I hope they put them all away. The ones with money usually get away.”
Despite their anger, few local investors appear ready to flee mutual funds — at least yet.
Ray Hernandez, a detention center worker with the city of North Las Vegas, for instance, said he didn’t want to incur unnecessary fees by pulling out of a fund until he has all the facts.
“I would kind of take a wait-and-see attitude about what is really going on,” Hernandez commented.
The scandal stems from revelations that some funds allowed large investors to do frequent trading despite restrictions on other investors. In some cases, officials accused funds of allowing hedge funds and other big investors to trade shares after the U.S. markets close.
Spitzer identified Janus as one of four mutual fund companies that was allegedly allowing hedge fund Canary Capital Partners to do rapid-fire trading.
“One of the funds I do own has been Janus,” Smith said.
“I’m not going to move any of my funds out of Janus,” Smith said. “All of my funds have come up 10 to 20 percent (this year). What do I care? I really don’t feel that it’s a real concern for the average investor. Where are you going to go (with investment money)?”
Money market accounts yield only one-half to 1 percent by comparison, he observed.
“If I had been investing in Janus,” Hemenway said, “I would have been having a heart attack.”
The casino worker, however, said she has been reading the news carefully to see if investigators have accused Vanguard Group, the manager of her mutual fund holdings, of any improprieties.
“I really do have a sense that they have integrity, honesty, and I just hope that they do,” Hemenway said.
She said getting out of the stock market isn’t a good option for her. “Because I have 20 more years to go (to retire), I think it would be foolish for me to pull out,” she said.
Cohen noted that mutual fund investors could be hurt if any of their funds hold illiquid investments, such as junk bonds or small company stocks. If investors flood a mutual fund with redemption notices, the managers could be forced to sell these illiquid investments at a discount.
“The last one out could be the sucker who suffered the biggest losses,” Cohen said.
But Cohen berates the Securities & Exchange Commission for allowing mutual fund managers to resolve allegations by simply paying fines.
“Once again, the SEC is stepping up front and fining these people for stealing,” he said. “They can get away with murder and do it again.”
He wants President Bush to “fire (SEC Chairman William) Donaldson and hire Spitzer.” The New York attorney general “is obviously not slapping wrists. He is punishing people.”
Some local financial advisers are worried about the effect of the latest financial scandal on their business.
The mutual fund scandal “gives us a black eye in the industry, and it makes investors very timid,” said John Futrell, president of Futrell Financial Management. “I’ll be glad when it’s cleaned up, and we’re back to the good old integrity.”
Nevertheless, Futrell said his clients have no reason to worry about the scandal since “we aren’t mutual fund fans, anyway. We don’t use mutual funds.”
Futrell recommends unit investment trusts, which have a fixed portfolio of stocks or bonds.
Hugh Anderson, vice president of Merrill Lynch in Las Vegas, also has not seen any signs that local investors are fleeing funds that have been accused of wrongdoing.
As for his company, he said, “We are withholding any judgment until the facts present themselves.”
Lance Berg, a spokesman for Charles Schwab & Co., said his brokerage’s policy prohibits disclosure of money flow among specific funds. Overall, however, “for the month of October, we saw a significant influx into equity funds,” Berg said.
“Investors, we think, are feeling better about the market. They’re feeling better about the economy,” he said. “We still think mutual funds are a great benefit. It is significant that investors still are investing in mutual funds and still have confidence in mutual funds in general.”
A few days after that conversation, Schwab disclosed that it was conducting an internal investigation of 18 trades and that it fired two employees who deleted related e-mails.
“I suspect at this time that the majority of the mutual fund industry will be implicated with market timing practices,” said State Treasurer Brian Krolicki.
While some investors could dump mutual funds, working people can only invest in a limited number of funds in 401(k) retirement and 457(b) retirement programs.
Sierra Pacific Resources, the parent company for Nevada Power, has a committee that reviews its 401(k) fund options for employees.
“That committee ensures that they are conducting business lawfully and applying the strictest fiduciary standards,” said Sonya Headen, a spokeswoman for Nevada Power. She did not disclose whether any funds offered in the company’s 401(k) have been accused of wrongdoing.
Detra Page, a spokeswoman for Sprint Corp., said the telephone company continually reviews its mutual fund offerings to employees participating in its 401(k) program. Before Janus funds were accused of questionable actions, Sprint eliminated a Janus fund from its offerings in July, because of its performance, she said.
Roger Buehrer, a spokesman for Southwest Gas Corp., said a company committee analyzes fund managers quarterly and hears a personal presentation from each of the mutual funds included in the 40l(k) yearly. “To date, we have not had any funds affected,” Buehrer said.
About $6 million of $400 million in Nevada’s state college savings program was invested in Strong Mutual Fund, Krolicki said. The College Savings Plans board, which he serves as chairman, decided to move those funds gradually to other funds.
—–
To see more of the Las Vegas Review-Journal, or to subscribe to the newspaper, go to http://www.lvrj.com.
(c) 2003, Las Vegas Review-Journal. Distributed by Knight Ridder/Tribune Business News.
SCH, FON,
