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Two headlines in December tell the tale. “Who’s afraid of Eliot Spitzer?” asked the New York Times. “Eliot who?” Iowa’s Des Moines Register inquired. The implicit answer to the Times’ question was: Wall Street. In Iowa, the Register’s editorial board called Spitzer “an obscure state attorney general,” then recommended the 44-year-old New Yorker as Time magazine’s Person of the Year, stating that he “deserves the nation’s thanks.” Now in the second year of his war on Wall Street corruption, Spitzer this fall disclosed a mutual fund scandal over the disfavored but not always illegal practice known as “market timing.” Market timing involves buying and selling mutual fund shares over short intervals to take quick advantage of changes in share value. Such trading is usually done for the benefit of select, substantial investors in exchange for their commitment to pony up more money for riskier markets. The special treatment allows the heavy hitters to reap greater returns than fellow investors in the same fund. Consequently, it violates the notion-and sometimes the express prospectus warranty-that all investors in the same fund will receive the same rate of return. About 95 million people and 49% of American households have money invested in mutual funds, according to the Investment Company Institute. The funds are said to hold $7.151 trillion in assets. Spitzer’s investigation into the management of funds such as Janus, Invesco, Alliance Capital, Putnam, Bank of America and others touched off a wave of resignations among senior fund managers and a tsunami of class action filings by the securities plaintiffs’ bar. Last week, Alliance entered into a settlement with the AG’s office and with the U.S. Securities and Exchange Commission providing for its creation of a $250 million restitution fund to compensate its investors. It also agreed to boost its corporate oversight to guard against future market timing and to trim the management fees it charges investors by an average of 20%. That reduction is to remain in in effect for at least five years. Gerald H. Silk, a partner in the New York firm of Bernstein Litowitz Berger & Grossmann called Spitzer’s work “amazing.” Silk added, “He’s been out in front at every step of the scandal . . . a step ahead of everyone.” Based in part on the Spitzer probes, Silk’s firm has filed class actions against Bank of America and Janus. Similarly, the class action powerhouse Milberg Weiss Bershad Hynes & Lerach of New York has filed suit against Janus and Putnam. Milberg Weiss partner Steven G. Schulman said, “these are not copycat complaints, but to a large extent, we have awaited prosecution” to reap the benefit and imprimatur of the AG’s work. “Its very helpful because he can use the power of the subpoena and the power of his office to obtain evidence on Wall Street that private litigants don’t have the ability to gain.” Christine Benz, an analyst for Morningstar, the Chicago investment research firm, called Spitzer, “a force for tremendous good in the fund industry.” Nay-sayers Not everyone agrees. In an article titled, “Wall Street Thug,” Internet columnist Stephen W. Stanton compared Spitzer’s tactics to those of TV mobster Tony Soprano. In an interview, Stanton complained that Spitzer is “taking it upon himself to restructure the entire investment banking industry.” Walter K. Olson, a fellow of the Manhattan Institute, a conservative think tank, asked, “To what extent is he imposing a different regulatory scheme nationwide than the one imposed by the federal government?” Responding to his critics, Spitzer maintains that his cases are brought to benefit and protect the people of the state of New York, even if they incidentally benefit others. Asked to rate his performance in 2003, Spitzer demurred. “I’ll leave that to others,” he said. “We’ll continue to plug away.” Harris’ e-mail address is [email protected].

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