Mutual Fund Scandal

In just one trading day the Janus Worldwide Fund made 5% when the market was down 2%? On another day, the Old Mutual Fund was up 9% when the market was down slightly? What gives?

Do you remember the mutual fund trading and timing fiasco that was ended in 2003? I remember it too well. Brokers (a team at my former employer was written up frequently in the WSJ and other papers after they were busted) were trading mutual funds after hours.

It doesn't matter how the brokers and their hedge fund clients profited from the trades. It's sufficient to say that we (brokers that is -- and I was a broker, I mean financial advisor, at the time) thought they were on top of their games. We thought they were making money for their clients, building a loyal client base and, in turn, making a great living.

Then, one day, about 10 guys in white shirts and red ties walked in the brokers' office with hand held tape recorders. Their office was directly across the hall from mine. I had a perfect view as the brokers' files were pilfered and incriminating information was gathered.

Fast forwarding six years, settlements for the misdeeds of unscrupulous brokers, hedge fund managers and, in some cases, mutual fund companies, are being paid. Old Mutual Fund and Janus Advisor Worldwide, as I mentioned above, received large sums.

Morningstar has posted a piece on the mutual fund scandal and points out the mutual funds that recently received a windfall from the settlement.