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INVESTORS' SILENCE SPEAKS LOUDER THAN WORDS (mutual funds probe)
NY POST ^ | November 2, 2003 | TERRY KEENAN

Posted on 11/02/2003 5:12:05 AM PST by Liz

Edited on 05/26/2004 5:17:16 PM PDT by Jim Robinson. [history]

It's been one of the greatest mysteries of the post-Enron era.

Why did the nation's big institutional investors - primarily mutual funds - turn a blind eye to the rampant accounting fraud and other shenanigans that engulfed not just Enron but WorldCom, Global Crossing, Tyco and scores of others?


(Excerpt) Read more at nypost.com ...


TOPICS: Business/Economy; Crime/Corruption; Extended News
KEYWORDS: mutualfunds

1 posted on 11/02/2003 5:12:05 AM PST by Liz
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To: SolidSupplySide; SierraWasp; Grampa Dave; Pearls Before Swine; arete; Tauzero; kezekiel; ...
Terry Keenan on mutuals.
2 posted on 11/02/2003 5:14:00 AM PST by Liz
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To: Liz
Great-Oompa Charles Ponzi has tens of thousands of grandchildren.

Each one understands the vital importance of not being the last one in, so they work concertedly to maintain the sham ad not cause any panic for the exits or chilling of the popcorn poppers known as retirement plans.

Expect grand news and humoungous puffery about the vitality of the stock market!

3 posted on 11/02/2003 5:21:31 AM PST by bvw
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To: bvw
"like more independent boards of directors"

The same folks serve on so many boards it is impossible they could actually be more than rubber stamp boards.
So many are in bred and cross grafted to boards its Byzantine
4 posted on 11/02/2003 5:29:07 AM PST by Evil Inc
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To: Liz
With more than 40 percent of all U.S. stock holdings controlled by just 20 huge investors

So much for "free market" fantasies.
5 posted on 11/02/2003 5:31:09 AM PST by ARCADIA (Abuse of power comes as no surprise)
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To: Liz
Good article. Thanks for posting it.
6 posted on 11/02/2003 5:34:15 AM PST by PGalt
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To: ARCADIA
With more than 40 percent of all U.S. stock holdings controlled by just 20 huge investors, ....

But don't assume that these "royal families" are using their clout to influence the two major political parties in the US. Everyone knows the US is a free country with equal opportunity for all. /sarcasm

Our nation was once known for its free enterprise. Now, like Europe, we are controlled by oligopolies and monopolies and have become a nation of sheep. It is no wonder that a Supreme Court Justice says the US Constitution should take a back seat to world opinion, and there is but a whimper from America.

7 posted on 11/02/2003 5:43:35 AM PST by ghostrider
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To: PGalt
It has been like this for years. This is not a new phenomenum. When I was a broker in the mid-eighties it was well established then. I left the business because of the money laundering mainly but was well aware of the cronyism and trading irregularities. The sad fact is that the markets ceased to be a raiser of moneys for companies and instead has been a casino for quite some time. This is why a rising stock market has nothing to do with the business climate. Businesses ceased to rely on stock markets for support, and rely on the ever increasing debt market. This is one more reason our economy is so fragile.
8 posted on 11/02/2003 5:56:04 AM PST by meenie
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To: Evil Inc
You are quite accurate with your comment regarding the inbrededness of corporate boards.

We do however have a new phenomenon on the rise made possible by the internet. There are investment forums where investors come together to discuss the companies they invest in. One of the by products is the emergence of forum leaders who have demonstrated their due diligence talents. When such investors poll their share holdings, many find they have enough votes to elect one of their own to a board of a company in which they are invested.

The foregoing is actually happening, is in the whisper stage at the moment and is sending shockwaves through certain corporate halls.

Some hedge fund directors are so frightened that the internet could possibly unite investors that they send boilerroom operatives to disrupt and discredit investment forum leaders.

9 posted on 11/02/2003 6:01:10 AM PST by Hostage
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To: meenie
The casino nature of the stock market is enabled to a great extent today by the hypthecation agreements required by electronic brokerages.

Today, electronic brokerages hold hundreds of millions of shares on behalf of their account shareholders. As a result of their hypothecation agreements with shareholders (many shoreholders do not understand clearly what hypothecation entails), they "lend" the holdings of the shareholders to a borrowing pool which is then used by others (frequently fund managers) to short the underlying stock.

The fund managers work in tandem with the business press and news wires to look for any pretext to short the underlying. Even if a companies financials are in line with guidance and they post a penny loss, the short hedge will swing the share price down by over 20-25 percent through shorting (e.g. Sprint PCS). The hedge funds also know through paying brokerages for the data how many shares are on margin, and they know where the stops are.

So it is a big arcade game to these hedge funds. They borrow shares, short the stock, wring out the weak hands on margin, take out the stops and cover, all with the cooperation of Wall St. media.

Then they go long and get the stock price up on some puff piece of news and repeat the cycle.

The way to end this casino behavior is to require our legislators to pass a bill that reforms and sets standards for hypothecation agreements. But certain Wall St. icons make their billions through these hypthecation arrangements, so they will not let this go quietly. One of these icons is Jim Cramer, a host of CNBC's Kudlow and Cramer.
10 posted on 11/02/2003 6:17:08 AM PST by Hostage
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To: Liz
Good, informative article. Thanks.
11 posted on 11/02/2003 6:26:53 AM PST by DoctorMichael (Thats my story, and I'm sticking to it.)
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To: Liz
I'm suprised that there's no mention of Putnam's mounting troubles.
12 posted on 11/02/2003 6:30:56 AM PST by ninonitti
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To: Liz
Indexing and index funds are also a big part of the problem. They blindly place their money into the 100 to 3000 stocks that comprise the market index that they're supposed to invest in. Doubt that they do much of anything other than rubberstamp management's proposals on the proxy statement.
13 posted on 11/02/2003 6:48:53 AM PST by lchoro
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To: Liz
I've got most of my retirement in Strong. Lately, they've been kicking a.. on returns.
14 posted on 11/02/2003 6:55:53 AM PST by Eric in the Ozarks
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To: ninonitti
The worst is yet to come for Putnam. Their CEO got nailed for timed trades, for God's sake. He musta let everybody and his uncle in on the deal....everybody but shareholders, that is.
15 posted on 11/02/2003 8:17:19 AM PST by Liz
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To: Evil Inc
Free the market! Let stocks and preferred and bonds and such for small businesses such and pizzerias and car washes be sold on ebay! Let clearinghouses come into existance that package securities from small businesses. Abolish the SEC! Eliminate the tyraany of filings ... let the market police itself.

Let me write a security on myself, couponding 10% of my gross for the next five years ... to finance my college education,. my new restaurant outfitting and stocking cist, etc. To sell to the public, wide-open the market.

16 posted on 11/02/2003 8:37:51 AM PST by bvw
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To: bvw
Possibly the establishment of local or smaller area(states?) stock exchanges where you could invest in local small business and individual talents. Rules could be established to protect investors.
17 posted on 11/02/2003 9:03:21 AM PST by Evil Inc
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To: Evil Inc
BTTT!!
18 posted on 11/02/2003 9:14:26 AM PST by Lael (Bush to Middle Class: Send your kids to DIE in Iraq while I send your LIVELIHOODS to INDIA!)
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To: Liz; rohry; Wyatt's Torch; arete; meyer; DarkWaters; STONEWALLS; TigerLikesRooster; Ken H; ...
Richard Strong, a man who turned the fund company that bears his name into an $800 million personal fortune. Not content with that piggy bank, Strong now admits to improper trades that netted him an additional $600,000 at the expense of the little guys

Greed is good, Richard increased his net worth 0.00075%.

19 posted on 11/02/2003 9:37:20 AM PST by razorback-bert
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To: bvw
Free the market! Let stocks and preferred and bonds and such for small businesses such and pizzerias and car washes be sold on ebay! Let clearinghouses come into existance that package securities from small businesses.

How small, BVW?

Do you think that most small companies can afford the addtional overhead related to public reporting requirments, board oversight, etc.?

Do you think that fraud is more likely to occur in a small, thinly traded company, or a large, well-known one?

20 posted on 11/02/2003 9:42:02 AM PST by independentmind
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To: ARCADIA
Uh, Fidelity doesn't OWN the stocks. Its clients do.
21 posted on 11/02/2003 9:56:31 AM PST by NativeNewYorker (Freepin' Jew Boy)
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To: razorback-bert
I've met him -- movie star handsome, cocky, self-assured. Pr!ck.
22 posted on 11/02/2003 9:57:36 AM PST by NativeNewYorker (Freepin' Jew Boy)
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To: independentmind
the addtional overhead related to public reporting requirments, board oversight, etc.?

Reduce the overhead. Nearly eliminate the regulation. Let the market regulate. People are buying containerships full of pigs in a poke anyway ... the big stocks, for all of the *reporting requirements* still do NOT assure safety. What's the price of Global Crossing today?

23 posted on 11/02/2003 10:06:25 AM PST by bvw
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To: NativeNewYorker
Oh, just how many of the "investors" in the Magellan Fund have ever voted a proxy in any fund holding?
24 posted on 11/02/2003 10:08:03 AM PST by bvw
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To: NativeNewYorker
These "owners" have as much authority and effect as Terri Schiavo does.
25 posted on 11/02/2003 10:09:17 AM PST by bvw
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To: bvw
The proxy process has very very little impact, at any level.
26 posted on 11/02/2003 10:12:26 AM PST by NativeNewYorker (Freepin' Jew Boy)
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To: bvw
They are free to choose their investments.
27 posted on 11/02/2003 10:12:57 AM PST by NativeNewYorker (Freepin' Jew Boy)
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To: NativeNewYorker
Well that says something too.
28 posted on 11/02/2003 10:13:24 AM PST by bvw
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To: NativeNewYorker
Oh really? Choice? Choice between members of the rakes and sharks club, you mean. Most public "investments" -- retirement funds -- have severe regulatory constraints on what they may be invested in, those regulatory constraints are then topped by the extremely limited offerings of "choices" most plans have.
29 posted on 11/02/2003 10:16:24 AM PST by bvw
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To: bvw
I've seen hundreds of plans. They typically offer choices of various stock porfolios, fixed income, or fixed rate investments.

Now, I agree that this area is horribly over-regulated, and that the mutual fund perps should have electrodes attached to their 'nads, but people still have the responsibility to keep their eyes open and act intelligently within real world boundaries.

30 posted on 11/02/2003 10:37:07 AM PST by NativeNewYorker (Freepin' Jew Boy)
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To: bvw
You and I agree.
31 posted on 11/02/2003 10:37:31 AM PST by NativeNewYorker (Freepin' Jew Boy)
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To: NativeNewYorker
Uh, Fidelity doesn't OWN the stocks. Its clients do.

So, what are you trying to say? We are discussing control, not ownership.
32 posted on 11/02/2003 10:53:55 AM PST by ARCADIA (Abuse of power comes as no surprise)
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To: NativeNewYorker
But what can you do when the company for which you work invests it's 401K into a Putnam fund? You have no choice but to withdraw from the 401K program.
33 posted on 11/02/2003 10:54:15 AM PST by Terry Mross
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To: Hostage
When such investors poll their share holdings, many find they have enough votes to elect one of their own to a board of a company in which they are invested.

Many big corporations eliminated this option from their own employees who participate in their 401K. My employer used to allow contributors to by stock in the company through their 401K and even matched all contributions in company stock. Two years ago they changed the rules and forced everyone who owned the company's stock in the 401K to convert their holdings into a "shares fund" which took away all of their voting rights. They even changed the rules in the self-directed brokerage accounts to prevent them from owning two specific items: gold and silver bullion, and stock in the company.

34 posted on 11/02/2003 11:47:50 AM PST by Orangedog (Soccer-Moms are the biggest threat to your freedoms and the republic !)
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To: Terry Mross
I know people in that box. It sucks. I tell them to pick
the short-dated treasury bond fund because it is where the
perps can do the least damage. Also, now, the employees can point out that as fiduciaries, their company has no choice but to switch plan managers, given publicly available info.
35 posted on 11/02/2003 12:37:28 PM PST by NativeNewYorker (Freepin' Jew Boy)
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To: ARCADIA
Real world control of the company rests neither with Fidelity nor the typical shareholder, but with the individual company's management. Caveat emptor.
36 posted on 11/02/2003 12:38:39 PM PST by NativeNewYorker (Freepin' Jew Boy)
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To: Orangedog
Alot of companies switched their 401ks to mutual funds and various index investments. Most of it is driven by 401k management companies such as American General.

I have heard many accounts of employees being threatened if they mention they will pull out of their 401k.

One director of an HMO received quarterly fee compensation from American General for steering the HMO employees to them. When that word got out about it, the director was transferred to an affiliate HMP network and a new director leaked that such compensation was no longer offered, although after some digging, the word leaked through HR that the new director and the executive management were receiving discount pricing on certain mutual funds that they could sell immediately for a profit through their 401 account.

IMO the entire alignment of insurance and benefits through an employer should be questioned. It started in WWII as a result of a freeze on wages. There is no reason for it to continue today except that it provides convenient shopping for insurance and fund management companies. And it gives employers a piece of the action.
37 posted on 11/02/2003 12:44:42 PM PST by Hostage
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To: razorback-bert
Greed is good, Richard increased his net worth 0.00075%.

Yeah, but it was all tax free.

38 posted on 11/02/2003 3:39:03 PM PST by Liz
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Comment #39 Removed by Moderator

To: Evil Inc
"like more independent boards of directors"

The most intelligent question I've ever heard from many independent board members (read: faculty, PR and "diversity" appointments) was:

"What's for lunch?"

40 posted on 11/02/2003 5:46:08 PM PST by okie01 (www.ArmorforCongress.com...because Congress isn't for the morally halt and the mentally lame.)
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To: meenie
bump
41 posted on 11/03/2003 4:11:07 AM PST by PGalt
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To: bvw
"Reduce the overhead. Nearly eliminate the regulation. Let the market regulate"

i.e. the pre-1933/34-style market?
42 posted on 11/05/2003 8:53:19 PM PST by WoofDog123
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To: WoofDog123
Sure and pre-Wilson-era too.
43 posted on 11/06/2003 3:47:36 AM PST by bvw
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