INTRODUCTION The mutual fund market timing and late trading scandals initiated by New York Attorney General Eliot Spitzer in 2003 led to settlements from industry participants totaling over $4.25 billion. 2 However, Spitzer's actions were controversial and undercut the role of the Securities and Exchange Commission ("SEC"), which had been given pervasive regulatory authority over mutual funds by the Investment Company Act of 1940. 3 The SEC had also been embarrassed by earlier Spitzer

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... ns and by a spate of scandals at Enron and elsewhere. Spitzer's actions against the mutual funds made the SEC look even more ineffective. In order to restore its tarnished image, the SEC imposed more regulations on the mutual funds, including a requirement that they increase the number of outside directors on their boards. The actions taken by the SEC were highly politicized, and critics noted that such a requirement would not have prevented the mutual fund scandals and had no empirical support for providing better performance results. The SEC' corporate 1