Thu 19 Aug 2004
Van Eck is an investment firm that is in a bit of trouble with the authorities.
Mutual fund company Van Eck Worldwide says securities regulators are considering filing an enforcement action against it for permitting abusive trading in some of its funds.
The fund company made the announcement in a corporate filing late Thursday and said it is considering how to respond to the so-called Wells notice from the Securities and Exchange Commission.
See here for an overview of the scandal. Quick summary: Mutual fund companies, like Van Eck, let hedge funds do various sorts of rapid trading that hurt long term investors. The most amusing commentary is often at FundAlarm. He noted problems at Van Eck almost a year ago.
For those of you who are keeping a scandal scorecard, you might want to pencil in the Van Eck funds…..Van Eck has apparently been subpoenaed by Eliot Spitzer’s office, and it hasn’t been charged with anything yet, but the evidence of guilt is compelling: For 2002, Van Eck International Gold A experienced almost $2 billion in matching sales and redemptions, on an asset base of about $170 million — the surest test yet devised for market-timing activity…..It looks like Van Eck Global Hard Assets A also played host to market timers, along with three annuity funds in the Van Eck Worldwide Insurance series (Emerging Markets, Real Estate, and Hard Assets).
The only reason that this story is of interest to EphBlog is that firm founder, John Van Eck ‘36 and his son Derek Van Eck ‘86 are both Ephs. As a side note, Derek’s brother Jan (’85) is still listed as being part of the family firm in the alumni directory even though he does not appear as one of the firms investment professionals.
Alas, I think that this is a recent change. Jan does appear in reference to various hedge fund activities at Van Eck. It seems like Jan was involved with precisely those aspects of the firms operations that the SEC is now most concerned about. Van Eck Worldwide, in its corporate filings, indicates that two of its “senior officers” are a focus of the SEC investigation.
My quess: the SEC will come after Van Eck Worldwide and Jan Van Eck will have to leave (or has left) the company. There will be civil, but no criminal, charges. Van Eck will pay a hefty fine without admitting or denying wrong doing.
Of course, it is impossible to know, from the outside, what really happened at Van Eck and who, if anyone, is to blame. I knew Jan at Williams, albeit much less well than I knew Derek. He seemed a good guy then and, I suspect that he is a good guy now.
But good guys sometimes do bad things. The lesson for younger Ephs out there is that there are few places to hide in an increasingly transparent world. Best to conduct yourself as if everything you say and do in the business world is or will be public knowledge.
August 19th, 2004 at 9:26 am
Market timing is a very interesting issue. There is no question that late trading in funds (aka, allowing trades after the day’s trading has ended to allow investors to capitalize on after-close information) is a violation of SEC and criminal law. Market timing alone, however, is far murkier. The vast majority of mutual funds “allowed” market timing in their funds. Some were just plain victimized by a combination of very tricky financial advisors concealing their client’s identities and perhaps lax enforcement procedures, others were more aggressive in affirmatively welcoming market timers. But even in the latter, more culpable case, one thing is often lost in the shuffle: market timing was completely legal. The SEC knew about it, had an opportunity to quickly and effectively stop the practice entirely via a number of potential pricing mechanisms, and then dropped the ball completely and allowed timing to continue.
The question to ask at a place like Van Eck is not whether they allowed market timing in their funds — standing alone, that is simply not an SEC violation, let alone an illegal act. Rather, it’s whether they lied to investors in prospectuses, etc., by promising that they would not allow timers into their fund, then surreptitiously permitting big-money investors to time. Of course, if there is evidence of preferential proprietrary trading like at Strong funds or late trading, that is a whole different story.
Speaking of Spitzer, I would love to see a 2012 Spitzer / Obama ticket. These are my two favorite politicians. Both brilliant, charismatic (in very different ways), great speakers, attractive, genuinely interested in improving the country, without being patronizing ala Al Gore or exuding a sense of entitlement. More importantly, both have consistently accomplished impressive things throughout the course of their public careers, unlike, say, the two current candidates for President — one notable for doing nothing terribly offensive, one notable for screwing up essentially every single aspect of his tenure and turning his office into a joke, after a lifetime of accomplishing nothing.
Spitzer is the guy who broke wide-open the two biggest wall-street scandals in years, first the conflict of interest between investment advisors and investment banking in the tech industry, later the mutual funds scandals, each of which will provide billions of dollars to cheated investors before all is said and done and lead to inumerable reforms. Obama’s accomplishments are well known after his convention tour-de-force, but as an attorney I’m most impressed that after being editor of Harvard Law REview, he turned down prominent government jobs and high-paying firm jobs to practice civil rights law in inner city Chicago, and very effectively at that.
I say Willimas should try to book one of these two, perhaps both, for honorary degrees / speaking opportunities for next commencement. Though Obama may already be way too hot to entice to come to Williams, Spitzer, I imagine, as an A.G. (aspiring governor) would probably relish the opportunity to speak close to upstate New York area. And who knows, as a politician on the rise, Obama might enjoy the exposure as a commencement speaker as well. Both would be guaranteed to deliver fantastic speeches, if you’ve heard either of them speak.