Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship

CHAPTER 17

Normative Transparency of Mutual Fund Disclosure

JOHN A. HASLEM, Ph.D. Professor Emeritus of Finance, Robert H. Smith School of Business, University of Maryland

 

 

 

Mutual fund disclosure is dismal.

—Barbara Black, University of Cincinnati School of Law

 

 

 

The recent years have been a nightmare for far too many investors. After the imploding stock market bubble, investors were hit with abundant findings of conflicts of interest, greed, and fraud that pervaded too many corporate executive suites and directors’ boardrooms, along with their willing participants on Wall Street. This fall from grace on Wall Street and in corporate America has fueled many legal actions to punish the perpetrators, but with limited actions to improve laws and regulations protecting investors.

Correspondingly, in 2003, mutual fund investors had to deal with widespread findings of major fund adviser misconduct and illegality that still calls for much improved regulation and disclosure. The scandal findings require a new look at the Investment Company Act of 1940 (40Act), and the role of independent directors in providing adviser oversight.

The Wall Street Journal’s Lauricella (2003) quoted then-New York Attorney General Spitzer as stating that the “breach of fiduciary duty is appalling.” And, indeed, it was and still is. Spitzer examined the moat around the mutual fund industry’s self-proclaimed “wall of trusteeship” and found it all too shallow. This was seen in the all-too-frequent findings ...