As a mutual fund shareholder, you wanted to believe there would be no more scandals, that the bad guys had been caught, would be punished, and that the worst was over.
You'd have been better off believing in the Tooth Fairy.
An agreement reached last week between former Putnam Investments top dog Lawrence Lasser and the Securities and Exchange Commission shows all too clearly why "minor" scandals will keep happening in the business for years to come.
That's an ugly conclusion to draw about the business, but it's the logical supposition in light of the Lasser deal, which scarcely drew a headline when it was made public.
Lasser is the only fund company executive charged so far with fraud for authorizing payments to brokers for preferential sales treatment. Putnam paid $40 million to the SEC in 2005 to clear up charges that it never told fund investors or directors that it was paying for "shelf space," or the chance to have brokers make the firm's funds more of a sales priority.
These "revenue-sharing" deals are fairly common, and Putnam is far from alone in being targeted by regulators. Yet in virtually every other case where firms face charges over revenue-sharing deals, it's the business with money on the line; individuals are pretty much ignored.
Broaden the scope to other nefarious activities, and you'll find that the only times executives were named - such as Dick Strong of the Strong funds agreeing to a huge settlement with regulators - was when they were directly involved in allowing rapid-trading and circumventing fund rules. Without that kind of direct link, most actions have been against the business rather than individuals.
So the Lasser case was seen as a step up in enforcement, a sign that regulators wanted top managers to know that their necks are on the line.
Yet the settlement amounted to $75,000, a one-fingered slap on the wrist.
How inconsequential is that amount to Lasser? Consider that when he left Putnam, his severance package was worth $78 million, and that the company agreed to pay his legal fees.
So now that regulators have shown that "increased consequences" are wimpy deals, the thought process for fund executives could go something like this:
"If I can get away with an action that helps the firm make money - getting a rich salary, bonus and severance package in the process - I can earn enough to be set for life, even if I someday must pay a few grand for sticking it to shareholders."
Since the rapid-trading/market-timing controversy set off by Eliot Spitzer in 2003, the fund industry has seen a range of troubles that amount to "skimming," such as the revenue-sharing deals or the kickbacks that some small funds purportedly paid to service firms running their back-room operations.
Seen individually, these cases are not earthshaking. You're not going to find an investor who can claim to have lost their entire retirement-savings portfolio to this kind of fraud. But when top management face a penalty that amounts to a warning of, "Don't do this again," and when the guys in the trenches face no real consequences, there's not much deterrent to acting in bad faith.
"There are some 'everyone-is-doing-it' abuses that no one seems to be really getting punished for," says Mercer Bullard, founder of Fund Democracy, a shareholder advocacy group. "We'll see more cases, but there will always be another angle, at least until someone decides that hurting shareholders this way deserves real punishment."
The message from the Lasser settlement is clear: That kind of punishment isn't happening to fund executives any time soon.
Charles Jaffe is senior columnist for MarketWatch. He can be reached by mail at Box 70, Cohasset, MA 02025-0070.