Mutual Fund Managers Gambling With Your Money

Tacoma, WAYou are a smart cookie when it comes to investing your money in mutual funds. You know that there are both ethical and unethical companies and you know that there are good and bad investments. You put your money in a mutual fund because you have been told that mutual funds. are a solid investment. You trust that the mutual fund manager will make the right investment decisions, lessening your risk of mutual fund losses. You would never dream that your money could be invested in a company involved in blatant violation of US law.

Then, one day you realized that your money was invested in mutual funds that were invested in companies that ran illegal gambling websites. Not just the sites where people play for free. No, these are sites where actual money is involved—a violation of US gaming laws. Of course, you were not told your money was invested with such companies until it was too late.

The government had already come knocking and arrested people involved in the gambling websites. After that happened, your mutual fund lost value. It may not have lost a lot of value, but it certainly lost more than it would have if your mutual fund had been invested in companies that operated inside the law.

You probably never thought to ask your mutual fund manager if the funds were invested in companies with illegal operations. It sort of goes without saying that illegal companies are off-limits, doesn't it? The job of the mutual fund manager is to act in the best interests of investors and the fund, and investing in companies with illegal activities runs counter to that.

The argument could be made that the fund managers did not know about the illegal activity. But, their job is to investigate such things and to ask questions. It is up to them to make sure that your money is invested wisely. Surely all they would have had to do was go to the gambling websites to determine whether or not actual money was changing hands and they would have known. Furthermore, according to one lawyer, the gaming companies made it clear in their policies that they were breaking the law. So, the information was allegedly there to read.

If it is reasonable that the fund managers knew or should have known about the illegal activity on the part of companies they invested in, then the fund managers have breached their fiduciary duty to fund participants. Ignorance of a company's activities is not a defense if the important information was out there for anyone to access.

If the fund managers did know about the illegal activity, then they never should have invested in those companies in the first place. Most people, if asked, would say that they do not want their money invested with such companies. Even if they do not care about violations of the law—which many people DO care about—there is too much risk involved in investing with illegal companies. At some point, the government will find out about the illegal activity and then all the money will be gone.

So, lawsuits have now been filed against some mutual fund managers, alleging they invested in illegal gambling businesses causing investors to lose money. The investors, understandably, want to regain their losses. It is not their fault that the fund managers apparently invested their money in illegal enterprises. Why should they lose their money because of someone else's wrongdoing?

Of course, in the future they may find themselves asking if their money is being invested in companies that break the law—something they probably never thought they would have to ask.