INVESTORS' SILENCE SPEAKS LOUDER THAN WORDS (mutual funds probe)

NY POST ^ | November 2, 2003 | TERRY KEENAN

[Liz]

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?

[NativeNewYorker]

Uh, Fidelity doesn't OWN the stocks. Its clients do.

[NativeNewYorker]

I've met him -- movie star handsome, cocky, self-assured. Pr!ck.

[bvw]

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?

[bvw]

Oh, just how many of the "investors" in the Magellan Fund have ever voted a proxy in any fund holding?

[bvw]

These "owners" have as much authority and effect as Terri Schiavo does.

[NativeNewYorker]

The proxy process has very very little impact, at any level.

[NativeNewYorker]

They are free to choose their investments.

[bvw]

Well that says something too.

[bvw]

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.

[NativeNewYorker]

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.

[NativeNewYorker]

You and I agree.

[ARCADIA]

Uh, Fidelity doesn't OWN the stocks. Its clients do.

So, what are you trying to say? We are discussing control, not ownership.

[Terry Mross]

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.

[Orangedog]

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.

[NativeNewYorker]

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.

[NativeNewYorker]

Real world control of the company rests neither with Fidelity nor the typical shareholder, but with the individual company's management. Caveat emptor.

[Hostage]

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.

[Liz]

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

Yeah, but it was all tax free.

[okie01]

"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?"