Professor Takes SEC Lessons to CMU
Olson, Thomas, Tribune-Review/Pittsburgh Tribune-Review
Economist Chester Spatt tackled two of the top controversies to hit Wall Street during his three year as chief economist at the Securities and Exchange Commission.
Spatt, who returned to a professorship at Carnegie Mellon University last week, analyzed the economics of expensing stocks options and mutual-fund market timing and late trading practices. His job was to create economic models to assess the extent of financial damage to investors from rules violations, to devise penalties and to draft rules that would protect investors.
"Late trading and market timing was a huge issue at the SEC," said Spatt.
Securities regulators in 2003 found some mutual fund firms -- including Pittsburgh's Federated Investors Inc., which paid $100 million to regulators and customers -- violated regulations in two ways. They processed trades for select customers after hours, when the firms could exploit news that broke after markets closed. Also, firms churned mutual funds by excessively trading underlying securities, which hurt fund values by inflating expenses.
"After the scandal broke, companies figured out pretty quickly they needed to have policies in place," said Spatt last week, when he resumed his position as Mellon Professor of Finance at CMU's Tepper School of Business and director of its Center for Financial Markets.
Another hot issue was how companies should account for stock options they grant to executives. The compensation is especially popular among technology and early-stage companies -- but hard to value and often controversial when awarded excessively or expensed too lightly. …