Investors Deserve an Intolerant SEC

During the 63 years that mutual funds have been federally regulated, the industry has earned a reputation as a scandal-free refuge from the predictable bouts of fraud in America's financial-services industry. In one day last week, New York Attorney General Eliot Spitzer obliterated the "scandal-free" claim.

Whether the fund industry's image descends to the level of its incorrigible cousins in the brokerage, insurance, banking and hedge fund businesses will depend largely on how the Securities and Exchange Commission responds to this first-ever mutual fund scandal.

SEC staff is very effective at focused policing and responding to specific fraud uncovered by the press or academics. But it has failed to anticipate or even respond to signs of certain systemic problems that require a more global perspective. ...