If the rest of the world was like the mutual- fund business, Santa Claus could replace his elves with coal miners. Fifteen months of scandals have shown that plenty of bad boys...
If the rest of the world was like the mutual-
fund business, Santa Claus could replace his elves with coal miners.
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Fifteen months of scandals have shown that plenty of bad boys and girls in the fund world deserve nothing more than coal in their Christmas stocking this year, and that’s why it’s time for the second installment in my annual Lump of Coal Awards.
Lumps of Coal recognize managers, executives, firms and industry watchdogs for attitude, performance, action or behavior that is offensive, duplicitous, disingenuous, reprehensible or just plain stupid.
Fidelity Investments chief executive Ned Johnson for not knowing when to give up the fight.
Six months after failing to derail the Securities and Exchange Commission’s new rule requiring every mutual-fund board to have an independent chairman, Johnson is using backroom tactics hoping to buy the result he wants.
The rule has been hailed by consumer advocates and most of the fund industry but decried by Johnson, who would be forced in 2006 to step down as chairman of the family business, which just happens to be the world’s largest fund group.
While most opponents of the rule, including the Vanguard Group, gave up when the SEC voted to enact the new rule, Johnson leaned on U.S. Sen. Judd Gregg, R-N.H., to put a measure into a recent spending bill that will require the SEC to justify the need for independent chairmen. Fidelity Investments just happens to be Gregg’s largest “interest group” supporter.
Putnam Investments, for putting the gold in Larry Lasser’s parachute and then guaranteeing his safe landing.
Lasser’s reward for allowing Putnam to get dragged into the scandals was a $78 million severance payoff.
Worse yet, Putnam agreed to cover all future legal costs stemming from Lasser’s deeds.
For all Lasser did to soil the company’s reputation — for the employees and shareholders who suffered from his mismanagement — Putnam needed to put up a good fight, even if that wasn’t the most expedient thing to do.
Instead, Putnam sent the wrong message, again.
Gary Pilgrim and Harold Baxter, for the most egregious breach of trust in the history of the fund industry.
The co-founders of bull-market darling Pilgrim Baxter & Associates basically let their buddies pillage the PBHG funds for personal gain.
They paid fines totaling $160 million and accepted lifetime bans from the securities business, but it hardly feels like enough for destroying shareholder trust. (Pilgrim and Baxter sold their firm for about $400 million in 2000.)
Garrett Van Wagoner, the Lump of Coal (Mis)Manager of the Year for the second time in three years.
Van Wagoner was nailed by regulators this year for betraying “the trust investors place in mutual fund directors and managers to report their funds’ market values accurately.” He and his firm paid $800,000 to settle charges of mispricing securities and defrauding investors.
Van Wagoner had to step down as president of Van Wagoner Funds, but got to keep running his funds. Had regulators wanted to protect shareholders, they would have booted Van Wagoner completely.
Van Wagoner’s three funds are all off at least 14 percent this year, ranking them all among the 25 biggest stock fund losers for 2004.
Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at firstname.lastname@example.org or Box 70, Cohasset, MA 02025-0070.