The Conflict of Interest Game

Disgruntled investors are going after Wall Street once again, this time accusing one of investment bank Morgan-Stanley's high-tech mutual funds of making biased stock picks.

Recent lawsuits allege the Morgan Stanley Technology fund was influenced to buy and hold stocks of companies that delivered huge investment banking fees - or could potentially bring big business - to the investment bank.

According to the lawsuits, the Morgan Stanley fund followed the biased recommendations of the firm's analysts - decisions that have cost shareholders millions of dollars since the portfolio's October 2000 inception.

The fund lost 48 percent in 2001 and was down another 50 percent during the first nine months of 2002. While Morgan Stanley strongly denied the allegations, I fail to see how the management of the fund is somehow distinct from the other divisions of Morgan Stanley. Ultimately, they all work for the same boss.

The suits further claim that the tech fund failed to disclose that the firm had investment banking ties with a number of companies whose stocks were part of the portfolio. They also failed to reveal that those links could affect the fund's buy or sell calls.

Why bring all this up? For one thing, it is interesting to note that Morgan Stanley offered four of these types of funds in October 2000. Just around the time when we sold all of our positions (Oct. 13, 2000) and it became clear, at least to those of us who were tracking long-term trends, that a major trend change had taken place.

More recently in the news it's been Merrill Lynch who had a questionable deal involving transactions with failed energy trader Enron. Of course, the financial services industry regulates itself so well, that an $80 million payment to the SEC is sufficient to wrap up this case without admitting or denying wrongdoing.

What's the moral of this story? While it is impossible to predict these alleged conflict of interest schemes, it is definitely possible to follow a disciplined approach and be on the "right" side of the market so you can avoid jumping aboard a sinking ship.

About The Author

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped hundreds of people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com

ulli@successful-investment.com

Merck Investors Can Sleep Easier (Not Easy) DailyFinance By Brian Orelli, The Motley Fool Posted 3:34PM 02/06/12 Investing Merck (NYS: MRK) said today that its insomnia drug suvorexant had passed two phase 3 trials, putting it on track for an FDA filing this year. But that doesn't mean investors can sleep ... and more »

Investing mistakes even the pros make Sydney Morning Herald The best investors learn from their mistakes over time. And because I've made plenty of mistakes during my career, I'll optimistically say that means I've had lots of room for personal growth. Lucky you, then, for being able to learn from some of the ... and more »

USA TODAY

3 Dow Stocks That Jumped in a Down Market DailyFinance By Dan Caplinger, The Motley Fool Posted 7:06PM 02/06/12 Investing The stock market may have been down today, but things could have been worse. After falling nearly 70 points in early trading, the Dow Jones Industrials (INDEX: ^DJI) recovered to finish ... Investing In The Dogs Of The DowSeeking Alpha all 201 news articles »

Delaware Investments Tops "Barron's Fund Families Report" for 2011 MarketWatch (press release) PHILADELPHIA, Feb 06, 2012 (BUSINESS WIRE) -- Delaware Investments, a member of Macquarie Group, is ranked first in the "Barron's Fund Families Report" for 2011, according to the annual Barron's ranking. In the publication's Feb. and more »

Investments for Income Lovers Motley Fool With interest rates at historical lows, folks are having a hard time squeezing any meaningful income out of their investments. While you don't want to go out too far on a limb in search of higher yields, there are some steps you can take to boost your ... and more »

Your Most Important Investing Decision of the Next 10 Years TheStreet.com And these are some of the most boring companies you can think of -- real-state investment trusts (REITs), pipeline operators and cigarette makers. But they all have one thing in common. As the chief investment strategist behind High-Yield Investing, ... and more »

Ask the Experts: What looks attractive for investors? Kansas City Star By CLAUDIA BUCK With the economy starting to perk up, investors are wondering where they should be looking next. Here with some recommendations is Glenn Kenes, managing director of investments with Barber-Kenes Capital Management Group in Auburn, ... and more »

J.D. Power and Associates Recognizes Merrill Edge(R) Call Centers for Customer ... MarketWatch (press release) For customers who prefer to invest on their own, Merrill Edge provides an online self-directed investing platform, with robust tools and resources to help them make informed investment decisions. "This designation acknowledges the strong commitment ... and more »

TD Ameritrade Investor Poll: Younger Investors More Likely to Invest "More" in ... MarketWatch (press release) OMAHA, Neb., Feb 06, 2012 (BUSINESS WIRE) -- The European debt crisis, US unemployment, the housing market, and political uncertainty - a laundry list of issues that may be causing investors to think more cautiously about their financial futures. and more »

Freedom Investing 2012 Forbes I've been discussing foreign freedom investing for a decade now. In the spring of 2010, I used the term “Ring-of-Fire” to describe countries with a high debt and deficit and suggested avoiding them. A year later, I revisited that advice and counseled ... and more »