The mutual fund isn't exactly celebrating the two-year anniversary of the largest scandal in its history. But it is breathing a whole lot...

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The mutual fund isn’t exactly celebrating the two-year anniversary of the largest scandal in its history.

But it is breathing a whole lot easier because the worst is over, in two distinctly different ways. For starters, the behavior that dragged nearly 20 fund companies into the mud — allowing some shareholders the right to make rapid trades that were not permitted for all investors — appears to have stopped.

Secondarily, lots of perpetrators seem likely to get off scot-free.

Research from Lipper makes it easy to draw both conclusions, although the second one is helped out by the actions of regulators, who appear to have moved on.

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For starters, it has been possible to track the data used in these studies for about a decade, but no one looked at the numbers because they were unaware the problem existed.

But once the rapid-trading charges surfaced, industry watchers recognized it wasn’t hard to find the bad guys if you simply looked at two key numbers.

The first was “redemptions as a percent of assets at the beginning of the year.” If the average fund shareholder keeps a fund for just less than three years, the generally accepted figure, redemptions should run about one-third of assets in any given year.

So when redemptions are more than 200 percent of assets at the start of the year, a whole lot of selling is going on.

The second key statistic is “redemptions as a percentage of sales.” If an investor sells a fund and buys it back, all of the money is flowing in a circle and long-term holders are paying the transaction costs. In most funds with long-term owners, redemptions would be a small percentage of sales.

Stephen Cutler, the former director of enforcement for the Securities and Exchange Commission noted that if the first number — redemptions compared to assets — was more than 200 percent, and the second number was around 100 percent, you had a candidate for having allowed timing trades.

Based on data available just before the Sept. 3, 2003, date when the first shots of the scandal were fired — and looking only in the asset classes like international funds where rapid trading was most likely to produce an advantage that a timer would trade on — Lipper found about 280 funds that fell on the wrong side of Cutler’s cutoff, having allowed far too much trading for the investment pattern to be normal.

Using the most current data available, Lipper did the same check again, post-scandal. Just under 110 funds fit the rapid-trading profile, and all but a dozen of those were timing vehicles. Ordinary funds have left the danger zone.

“Since [New York State Attorney General Eliot] Spitzer turned the light on, this kind of activity has virtually stopped,” says Don Cassidy, senior research analyst at Lipper.

“But there are a lot of funds that have the same profile as the ones that were named in charges, where it looks like nothing is happening, like the company is going to be able to walk away without facing charges.”

Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at jaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.