Investors Need to Be Wary of Abuse, Levitt Says


At a moment when the amount of money in mutual funds--$3.5 trillion--for the first time in history exceeds the amount of deposits in all U.S. commercial banks, American investors are more vulnerable than ever to fraud and more in need of basic information about where they are putting their money and from whom they are getting their advice.

So says the nation’s top securities watchdog, Arthur Levitt, chairman of the U.S. Securities and Exchange Commission.

“The most important investment lesson I can convey to you comes down to two words: Ask questions,” Levitt said in his keynote speech Sunday at the Los Angeles Times Investment Strategies Conference at the Westin Bonaventure Hotel in downtown Los Angeles.

Investors’ hunger for information was evident in the turnout for the two-day conference. The sellout crowd of more than 9,000 filled many of the speeches and panel discussions to capacity and beyond.


Besides Levitt, headliners at the first-time event included the brother duo of Dave and Tom Gardner, co-founders of Motley Fool, the irreverent investment-information site on America Online, and Wall Street trailblazer Muriel Siebert, president of Muriel Siebert & Co. discount brokerage.

Panel discussion topics included--among many others--growth-stock investing, retirement and estate planning, investing on the Internet, women’s investment issues, financing children’s education and investing in California municipal bonds.

The huge influx of new money into mutual funds and other investments--fueled in large part by the baby boomers’ shift from a home-buying mode to a retirement-planning mode--means that there are more inexperienced investors in the market than ever, which Levitt said increases the potential for abuse.

He cited as an example a venture called Golden Waters Productions run by an investment promoter who enticed investors over the Internet with claims of a “whopping 20% return” on a “very low-risk investment” in eel farming. The promoter’s experience in the field was nil, said Levitt, “beyond his own experience as a slippery character.”


The SEC stopped the venture with a court order before it could collect any investors’ money, Levitt said. His point was that investors need to educate themselves to see through schemes that sound too good to be true.

In an effort to aid the education process, the SEC, through its “plain English” program, will soon require mutual funds to include, along with their regular prospectuses, a four-to-six-page disclosure statement that explains the funds’ objectives, fee structures, use of derivatives and other volatile investments, and performance history.

But Levitt said investors must take the initiative to read such information when it is provided and to ask questions about how their brokers are compensated, how the sales charges and management fees of their mutual funds affect their overall return on investment, and whether a particular type of investment is appropriate for their individual circumstances.

Additional coverage of the Investment Conference, including excerpts of speeches and additional photos, can be found on the Los Angeles Times Web Site at