Mutual Fund Reform May Elude Congress

After Donaldson's testimony, the end to hearings opens a brief legislative window in which the Senate can act on mutual fund reform.

Mingione of Susquehanna says national party conventions and the final phase of the presidential contest will preclude the passage of major legislation.

"Come June, everyone's attention will shift, and then the conventions will be in July, and it's virtually impossible to get anything accomplished during that time," Mingione says.

John Collins, a spokesman for the Investment Company Institute, says that the SEC's proposed rule changes should address most of the issues raised since Spitzer's investigation implicated major mutual fund companies, including Putnam Investments a unit of Marsh & McLennan (MMC), Alliance Capital Management and Massachusetts Financial Services.

"Many of the proposals for reform do not require the passage of laws but can be done by the SEC saying, 'From this point on, it will be done,'" he says.

The ICI has supported industry reforms, and Collins says retiring president Matthew Fink and Chairman Paul Haaga have worked hard in cooperating with regulators and legislators. Haaga will testify Wednesday in an afternoon hearing.

"This is a very serious development to have, after 63 years without serious scandal, to have this breach of confidence and public trust," says Collins.

When Wednesday's hearings conclude, the Senate will have more testimony from mutual fund executives, views from the independent research industry and a wide sampling of voices who agree reforms must happen but haven't agreed on the methods. It will also have Siedle's estimate that the industry has already cost investors a trillion dollars over the years.