Judge's Gavel Slams Down on 'Victimized' Speculators

Away from stocks, fixed income was up a touch. The dollar was mixed, with the euro slightly lower, and both the yen and the Canadian dollar 1% higher. Silver gained 1.5%, while gold was flat.

Of Statistics and Smoking Guns: Turning to the news, there are a handful of items to cover. First, a regular reader sent me a story by Mark Hulbert titled "Evidence of Market Manipulation," carried today by www.CBS.Marketwatch.com. In it, Hulbert cites a study called "Leaning for the Tape: Evidence of Gaming Behavior in Equity Mutual Funds," which appeared in the April 2002 issue of The Journal of Finance. He says, "Researchers found that on the last trading days of the calendar quarters between July 1993 and June 1999, some two-thirds of all domestic equity funds beat the S&P 500 -- about three times higher than the percentage of them that beats this index on all other days."

So, there's a little statistical data to support the claims of those of us who've talked forever about tape-painting. Based on his observations, Hulbert believes the practice is still occurring. In fact, we saw it last Monday (what a shock). Maybe this compelling data, coupled with an SEC under new management, will put the spotlight on this kind of behavior and get it to stop. Tape-painting is basically a blatant abuse of one's fiduciary responsibility, and helps foster a culture that tolerates minor wrongdoing, which eventually leads us to Dennis Kozlowski- and Ken Lay-sized problems.

The Buck Stops with the Buy Order: Speaking of outsized skullduggery, I'd like to shift gears for a moment. I have been severely critical of Wall Street's practices, corporate America's practices, and of course the Fed's practices -- while spending little time on the blame rightfully shared by certain individual investors. But folks need to understand that they must assume responsibility for themselves. That's why I happen to agree with yesterday's decision by Judge Pollack, in which he basically held certain folks accountable for their stock market losses. As he opined, via an account in today's New York Times: "The record clearly reveals that plaintiffs were among the high-risk speculators who now hope to twist securities laws into a scheme of cost-free speculators insurance." (Let the Rap record show that it was likely more a case of class-action lawyers eager for a buck than so many aggrieved investors seeking redress.)