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MEDIA ALERT: Bentley Professor Available to Comment on Mutual Fund Industry Scandals

November 9, 2003

WALTHAM, Mass. - Professor of Finance Leonard Rosenthal is available for media interviews regarding the recent problems and scandals in the mutual fund industry.

Rosenthal puts the current situation in perspective, warning that there is danger ahead.

"At current time, the magnitude of fund shareholder losses that we are aware of are very small, relative to the almost $7 trillion under mutual fund management," he says. "However, we have yet to see the full magnitude of shareholder losses. Even more important is the loss in credibility and trust given the prestige of some of the funds and fund families. Among the well known fund families involved so far are Putnam, Strong, Janus and Alger. The bottom line in the money management business- trust is everything.

"The most egregious doings by the fund companies and/or their agents was to allow late trading, which is totally illegal," he adds. "Unfortunately, the ability to late trade has been well known in the hedge fund industry, which has profited handsomely from it in the last five years. Equally reprehensible was the fact that some fund managers engaged in late trading of their own funds for personal gain and the sharing of fund holdings with outsiders so they could take advantage of that information."

How did this all happen?

"Years of complacency along with a massive increase in the size of the industry, with increasing reliance on brokerage firms to sell shares in mutual funds," says Rosenthal. "The use of brokerage firms added a second layer to required compliance. Unfortunately, the brokerage industry is driven by the need to generate commissions and not to compliance. However, the biggest failure has to do with lack of competent and truly independent directors who are supposed to work on behalf of the fund holders. Too many fund management companies have been more interested in asset gathering than in good portfolio management."

At the most basic level, Rosenthal notes that the funds and their management failed to be aware of late trading and market timing or chose to allow it to continue

"While the fund directors are not supposed to micromanage the fund, apparently these practices and what to do about them were not on their radar screen, so add the directors to those who failed here," he says. "An understaffed and under-involved SEC failed to monitor the fund industry as well."

Leonard Rosenthal is an authority on mutual funds and investor relations. His other current areas of interest are equity valuation, market microstructure and special financing techniques. A consultant to local investment banking firms, Rosenthal holds a PhD from City University of New York.

BENTLEY UNIVERSITY is one of the nation’s leading business schools, dedicated to preparing a new kind of business leader – one with the deep technical skills, broad global perspective, and high ethical standards required to make a difference in an ever-changing world. Our rich, diverse arts and sciences program, combined with an advanced business curriculum, prepares informed professionals who make an impact in their chosen fields. Located on a classic New England campus minutes from Boston, Bentley is a dynamic community of leaders, scholars and creative thinkers. The Graduate School emphasizes the impact of technology on business practice, in offerings that include MBA and Master of Science programs, PhD programs in accountancy and in business, and customized executive education programs. The university enrolls approximately 4,100 full-time undergraduate, 140 adult part-time undergraduate, 1,430 graduate, and 43 doctoral students. Bentley is accredited by the New England Association of Schools and Colleges; AACSB International – The Association to Advance Collegiate Schools of Business; and the European Quality Improvement System, which benchmarks quality in management and business education. For more information, please visit

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