Sen. Collins Questions Why SEC Has Failed to Detect Mutual Fund Abuses

WASHINGTON, D.C.— During Senate Governmental Affairs subcommittee hearing examining illegal practices allowed by some mutual fund companies, Chairman Susan Collins (R-ME) today questioned why the Securities and Exchange Commission has failed to detect these practices, impose appropriate restrictions, or penalize those who appear to be misusing investors’ money.

“Millions of good, hardworking, middle-income families are doing their best to plan for retirement or pay for their children’s education by investing their savings in mutual funds that are promoted as a haven for small investors,” said Senator Collins. “Of all the components of the financial industry, the mutual funds sector has perhaps the greatest responsibility to safeguard the interests of small investors.”

Within the last two months, more than a dozen companies have been named in allegations of misusing millions of dollars of their investors’ money. These practices benefit a select few at the expense of the vast majority of mutual fund investors, and there is evidence that officials at fund companies profited personally at the expense of their customers by market timing their own funds.

In her opening remarks at the hearing, Senator Collins pointed out that this is not a new problem. According to the State of Maine Securities Administrator, similar allegations involving these practices arose in the late 1990s. Little has been done to protect the nation’s 95 million mutual fund investors, 445,000 of whom live in Maine, Senator Collins noted.

“I question why mutual fund companies and their Boards of Directors would sacrifice the trust of their investors in this $7 trillion industry to benefit a select group of individuals who can afford to ‘play’ the mutual fund market,” said Senator Collins. “Clearly, something must be done to protect mutual fund investors, whether it is through legislation, tougher enforcement actions, stronger regulations, or all three.

“We have a regulatory system that is supposed to ensure that companies are acting in an ethical and legal manner. Mutual fund companies have Boards of Directors who are supposed to fulfill their fiduciary obligations toward their investors. Yet the abuses occur. The system is obviously flawed,” concluded Senator Collins.