Mutual Fund Conflicts of Interest in the Wake of the Short-Term Trading Scandals: Encouraging Structural Change Through Shareholder Choice

NYU Journal of Law & Business, Vol. 2, No. 91, 2005

55 Pages Posted: 30 Jun 2009  

Jeff Schwartz

University of Utah - S.J. Quinney College of Law

Date Written: Fall 2005

Abstract

This piece contends that the way mutual funds are typically organized incentivizes fund managers to put their own interests ahead of fund shareholders. It goes on to argue that the legal regime in place to protect investors from such abuse is flawed, and that the late trading and market timing scandals that came to light several years ago, among other harms that shareholders have endured, illustrate the need for substantive reform.

Investors would be best served, I argue, if mutual funds were organized in an alternate fashion - one which alleviates the conflicts of interest motivating management overreaching. The article concludes that a restructuring is possible through informed shareholder choice, but for this to occur the SEC must take steps to create a more knowledgeable investor base.

Keywords: Mutual Fund, Vanguard, Conflict of Interest, Late Trading, Market Timing, Disclosure

JEL Classification: G2, K22

Suggested Citation

Schwartz, Jeff, Mutual Fund Conflicts of Interest in the Wake of the Short-Term Trading Scandals: Encouraging Structural Change Through Shareholder Choice (Fall 2005). NYU Journal of Law & Business, Vol. 2, No. 91, 2005. Available at SSRN: https://ssrn.com/abstract=1427474

Jeff Schwartz (Contact Author)

University of Utah - S.J. Quinney College of Law ( email )

383 S. University Street
Salt Lake City, UT 84112-0730
United States

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