Fund-Board Independence Comes With a Price

Anything that encourages investors out of reasonably priced and generally safe mutual funds with good managers into very expensive, often unsafe and essentially unregulated hedge funds is bad. Maybe that's why the new head of the fund company lobbying group cheered on regulators who were trying to make hedge funds register.

A hedge fund scandal winds up in the paper every few months. Sometimes the fund goes belly-up from bad investments. Just as often, the fund managers invented their performance results -- effectively running a Ponzi scheme -- or simply looted the fund for personal expenses. How do these crimes against investors compare with allowing market-timers into a mutual fund? It's roughly the equivalent of murder compared with speeding.

Let's not forget that hedge funds were behind much of the illicit mutual fund trading, yet the spotlight is on the night watchman who looked the other way for a bribe, not the actual thief.

Regulators are creating a bigger hedge fund loophole by trying to fix past wrongs in the mutual fund industry. Don't get sucked in.