Hold On To Those Mutuals: Facts Confirm Funds' Worth.(ISSUES & INSIGHTS)(VIEWPOINT)

Byline: ALAN REYNOLDS

Mutual funds are suffering the glare of regulators' high beams because some sharpies trade the funds too quickly ("market timing") or after regular business hours ("late trading").

Even The Washington Post's most astute financial writer, James Glassman, was swept up in the excitement. He wrote: "The mutual fund scandals are spreading. New revelations show that more and more managers betrayed the mass of their customers by illegally favoring a few fast-buck artists."

Actually, what may have been done "illegally" remains unclear. New York law allows "deception, misrepresentation, concealment, suppression, false pretense, false promise" and perhaps an evil grin to be prosecuted as fraud, regardless of intent.

But most of Glassman's readers probably take "illegally" to mean a provable criminal offense under federal law.

Late trading at the previous day's price violates a 1968 SEC regulation. But a regulatory edict is not a law, and the SEC deals only with civil sanctions, not crime. Market timing is not even a civil offense, although one case involves fund managers themselves, which might qualify as insider trading.

As for the mutual fund companies themselves, most allegations of impropriety concern the fact that their sales literature implies that fund managers "may" -- at their discretion -- attempt to thwart frequent traders. Failure to thwart frequent trades may therefore lose customers, which could hurt the stock price of affected mutual funds companies.