Bail out right away from Amerindo mess

Your Funds

June 12, 2005|By CHARLES JAFFE

THROUGHOUT the mutual fund scandals, industry watchers couched their words, trying to make sure investors did not blow up their portfolios in a panic.

Whenever a new fund company showed up on the police blotter, experts warned against outright dumping. They noted that a scandal-tainted company might have had funds that were not directly implicated in the scandal or that selling could unlock big capital gains.

But in the new case of the Amerindo funds, there is no pussyfooting around.

Get out.

Now.

That's the only logical decision in any case where the mere charges of wrongdoing guarantee that the fund you own will be changed.

Amerindo Investment Advisors was a high-flying boutique investment company that made its name in technology investing during the bull market. It was not just the 250 percent gain of the Amerindo Technology fund in 1999 that drew headlines, but the philanthropic bent of manager Alberto Vilar and the horse-racing panache of co-manager Gary Tanaka that created an aura investors liked.

That aura pretty much turned to mud during the bear market, when the company gave up on several pathetic niche mutual funds and saw its flagship technology fund fall into a three-year tailspin that more than swallowed the gains of the 1998-1999 boom times. The company's mutual fund assets, which peaked at about $700 million in March of 2000 are now down to less than $100 million.

Soon, even that cash should be gone.

Two weeks ago, Vilar and Tanaka were carted off to jail, charged in two separate complaints of fraud. Federal prosecutors allege that Vilar looted a private investment account to fulfill some of his charitable pledges - but also to pay some personal business expenses - and that Tanaka used investor funds to buy five racehorses.

It is crucial to recognize that the alleged thievery did not occur in mutual fund accounts, but rather in separate accounts run by the company. Investors should not worry that their managers might be looting their account; fund assets are held by custodians, and managers could not access the cash the way Vilar and Tanaka purportedly did with the private accounts.

But the fact that the bad actions do not directly affect the funds does nothing to lessen the effect on Amerindo shareholders.

When Putnam and Janus was implicated in the wrongdoing of the scandals, investors in specific funds frequently were unaffected. Top brass might have been in trouble, but the fund itself did not change as a result of the trouble.

For Amerindo Technology, anyone who has stuck out the past few lousy years has stuck around because they wanted the guidance of Vilar and Tanaka.

Once Vilar and Tanaka were arrested, Amerindo Technology's independent directors stripped the duo of all responsibilities with the funds and started searching for new management to take over.

Last week, the fund's remaining directors hired Munder Capital to take over management responsibilities.

The Securities and Exchange Commission jumped into the act by asking a federal judge to appoint a receiver to take control of Amerindo Investment Advisors, noting that Vilar and Tanaka were the only ones at the company with full decision-making authority.

Even if Tanaka and Vilar are exonerated and wind up back in charge - and it's questionable whether an Amerindo Technology shareholder would hope for that - the fund would spend months in limbo.

That's hardly what shareholders go looking for when they pick a fund.

The likely outcome for Amerindo Technology is pretty simple: With Munder in place as manager, the directors wind up approving a deal that merges the Amerindo fund out of existence, folding the money into something Munder was operating independently before stepping into this picture.

You could look at Amerindo Technology's recent results and joke that any manager change would be an upgrade, but there is little reason to stick around assuming that the independent directors will do a better job picking a replacement than you could do on your own.

As for the capital gains issue, most investors in the fund have no such worries. The bear market took care of most of the fund's winnings, but the tax bill for those facing one will be a small price to pay to jump ship on a fund that - with management in jail - has lost its rudder.

"You can make a pretty good case that there is no reason to wait around here to see what happens next," says Gregg Brewer, director of mutual fund resources for the Value Line Mutual Fund Survey. "Whatever happens next, this will not be the same fund you bought, so you can say that investors are better off simply changing the fund than waiting to see what happens next."

Charles Jaffe is senior columnist for MarketWatch. He can be reached at jaffe@marketwatch.com or Box 70, Cohasset, Mass. 02025-0070.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.