Professor Bainbridge...on law, politics, religion, culture & food

Regulation by Litigation: Spitzer’s Attack on Mutual Fund Fees

NY attorney general Elliot Spitzer has no power - none, nada, zilch - to regulate mutual funds fees. Yet, the WSJ reports that Spitzer plans to require fee reductions as part of any settlements he reaches with fund companies in late trading and market timing cases. This is even worse than the private party Regulation through Litigation about which I have opined in this space before. This is a gross abuse of prosecutorial power - leveraging what I regard as perfectly legitimate charges to accomplish unrelated goals the regulator has no constitutional right, statutory authorization, or common law power to regulate directly. (In contrast, the SEC gets it.) Early on in my blogging career I gave an affirmative answer to the question Can you be a Competitive Federalist and still want Spitzer to shut the #@!% up?. The case I made there for preempting Spitzer via federal legislation becomes stronger with every passing day.