The very first mutual fund I ever bought, years ago, was on offer from what was then a well-respected firm, INVESCO. I'd been talked into taking a bit more concern for my future, and had determined that I really should be socking some money away. Being something of a financial crank, I went to the library and did extensive research on what funds I ought to buy. The answer was clear: INVESCO was the outfit for me.
In late 2003, news broke that the Attorney General of the State of New York had discovered some disturbing behaviors on the part of some mutual fund companies. There seemed to be evidence of Big Shot clients of various mutual fund companies being granted special "market-timing privileges", and there was other stuff too. It seemed, try not to faint, that the playing field had been a little bit stacked against The Little Guy.
I shot off an email to my Very First Mutual Fund Company, which by then had been acquired by AIM Investments. I wanted to know if they had been doing anything fishy with my money. On November 10, 2003, AIM replied to my queries. Here is a portion of that email:
Neither AIM nor INVESCO has received any notice from the New York Attorney General's office regarding any legal action.
AIM and INVESCO are conducting internal reviews of these issues and continue to believe that our decision-making process has always been consistent with our commitment to serve the best interests of AIM and INVESCO shareholders.
In September of 2004, I received the following communication from AIM:
To our clients:
As part of our ongoing pledge to provide you with timely and accurate information, we want to inform you that INVESCO Funds Group Inc. (IFG) has reached agreements in principle with the Attorneys General of Colorado and New York and the staff of the U.S. Securities and Exchange Commission (SEC) to resolve civil enforcement actions and investigations related to market timing. Additionally, A I M Advisors, Inc. (AIM) has reached agreements in principle with the Attorney General of New York and with the staff of the SEC to resolve the separate market-timing investigations of AIM. All of the agreements are subject to preparation and signing of final settlement documents. The agreements with the staff of the SEC are subject to approval by the full Commission. Additionally the Secretary of State of Georgia is agreeable to the resolutions with other regulators.
Under terms of the agreements, IFG will pay a total of $325 million of which $110 million is civil penalties. AIM will pay a total of $50 million of which $30 million is civil penalties. The agreements also will commit the companies to a range of corporate governance reforms. Under the agreements with New York and Colorado, management fees charged to investors on the AIM and INVESCO funds will be reduced by $15 million per year for the next five years. IFG will pay $1.5 million to the State of Colorado to create a trust for investor education and to reimburse the state for the costs of its investigation.
It is important to note that none of the costs of the settlements will be borne by the AIM and INVESCO funds or fund shareholders.
What happened in those intervening 10 months? Eliot Spitzer.
Mr. Spitzer recently announced his intention to run for the Governor of New York. Not too long after that, I heard a representative of the United States Chamber of Commerce sharpening his knife, er, I mean, political attack. He, in essence, called Spitzer an Insensitive Bully who is hostile to Corporate America. Well, we know that sort of thing will only get worse once the campaign actually begins. If this was all taking place in Moscow, Spitzer would probably have been gunned down by now, at the behest of some oligarchic cabal.
And, by the way, I don't hate Corporate America. I love Corporate America. It provides jobs, you know? That's good. What's bad is corruption. In case anybody's forgotten.
The current issue of New York magazine has an article called "Inside Eliot's Army". As someone who got a We're Looking Out For You letter from my mutual fund company, and then ten months later got their Sorry We Effed You Over, I enjoyed the hell out of the article. Especially the part where Marsh & McLennan, at the time the world’s largest insurance broker, tried to Sensitive its way out of the shit-storm it was then heading for (and has now met up with). Yeah, yeah, mean old Hellion Spitzer, picking on our Sensitive Corporations.
The article does make clear that the skill set required to go after corporate corruption is not the same skill set required to govern a state with the sort of dysfunctional government New York has. Still, six years ago, the office of the Attorney General was a sleepy backwater. Things happen. People, especially smart people, learn how to do things they didn't know how to do before. Whatever else you might say about him, Eliot Spitzer is a very smart man.
I can hardly wait. I can hardly effing wait for Governor Spitzer.