Mutual fund market timing: A tale of systemic abuse and executive malfeasance
Date | 01 June 2004 |
DOI | https://doi.org/10.1108/13581980410810704 |
Pages | 170-177 |
Published date | 01 June 2004 |
Author | James B. McCallum |
Subject Matter | Accounting & finance |
Mutual fund market timing: A tale of
systemic abuse and executive malfeasance
James B. McCallum
Received (in revised form): 31st March, 2004
Sum2, LLC, PO Box 184, Little Ferry, NJ 07643, USA; tel: +1 201 440 1173; fax: +1 201 440 5566;
e-mail: president@sum2.us
James B. McCallum is the President and
CEO of Sum2, LLC. With over 20 years’
experience in the financial services indus-
try he has extensive market and business
knowledge of all facets of the financial ser-
vices industry. After graduating with a
political science degree, he has held
senior management positions with, among
others, ADP, Financial Times, Chase Man-
hattan and Standard and Poor’s. He is a
frequent speaker at financial services
industry conferences and has lectured
extensively on hedge funds, securities
data management, enterprise risk man-
agement and regulatory compliance pro-
grammes.
ABSTRACT
KEYWORDS: mutual fund market timing,
hedge funds, enterprise risk management,
regulatory compliance, reputational risk,
NAV forward pricing
The mutual fund market timing scandal and
continuing investigative probes read like a
Greek tragedy. It is beyond comprehension how
senior investment management executives would
become willing accomplices in fleecing their cli-
ents’ assets, impairing their portfolio managers’
investment returns and destroying the reputa-
tions of some of the industry’s greatest fiduciary
brands. This paper looks at the systemic roots
of the scandal and how Canary Capital Part-
ners enlisted the help of Bank of America Secu-
rities Executives to market time the bank’s in-
house mutual funds in violation of SEC for-
ward pricing regulations.
INTRODUCTION
The mutual fund market timing scandal
and continuing investigative probes reads
like a Greek tragedy. It is beyond compre-
hension how duplicitous senior investment
management executives would become
willing accomplices in fleecing their clients’
assets, impairing their portfolio managers’
investment returns and destroying the
reputations of some of the industry’s great-
est fiduciary brands.
Though this tragedy has yet to play itself
out fully — indeed investigations continue
— litigations are planned, damage control
advertising campaigns are in full swing,
huge fines are being imposed and, as
executive suites continue to be purged, a
number of telling observations are begin-
ning to be made on how sound risk man-
agement practices broke down with such
telling effect.
Even from such close proximity to the
events three distinct breakdowns of sound
risk management practices are discernible.
Those breakdowns include the failure to
adhere to regulatory guidelines concerning
the forward pricing rule and late trading,
Page 170
Journal of Financial Regulation and Compliance Volume 12 Number 2
Journal of Financial Regulation
and Compliance, Vol. 12, No. 2,
2004, pp. 170–177
#Henry Stewart Publications,
1358–1988
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