When does improper conduct become criminal? Conflicts of interest in the mutual fund industry

Abstract

Purpose

To emphasize the need for financial services companies such mutual funds and brokerage houses to establish internal controls and related procedures for identifying potential conflicts of interest.

Design/methodology/approach

Reviews government investigations into scandals involving the mutual fund industry over the past two years, including late trading, marketing timing, revenue sharing, directed brokerage, and gift‐giving; notes that criminal prosecution in this area is infrequent but still possible; and recommends, given the current landscape, that financial services companies examine their procedures for identifying and eliminating conflicts of interest.

Findings

Concludes that recent mutual fund scandals have changed the regulatory landscape and the regulators, and in some cases prosecutors, are committed to aggressively pursuing any possible impropriety or conflict of interest between mutual fund advisors and the investing public.

Originality/value

Provides a useful review of recent mutual fund scandals for the purpose of demonstrating to fund managers and directors why they should review their controls and related procedures to identify and eliminate conflicts of interest.

Citation

Kotlier, J.L. (2005), "When does improper conduct become criminal? Conflicts of interest in the mutual fund industry", Journal of Investment Compliance, Vol. 6 No. 1, pp. 31-38. https://doi.org/10.1108/15285810510634678