“Mutual-fund trading scandals have hurt investors and inflicted long-term damage on the $7.5 trillion fund industry, the Securities and Exchange Commission’s top fund watcher said,” wrties Judith Burns in today’s Wall Street Journal.

“Paul Roye, head of the SEC’s investment-management division, said the fund industry ‘must shoulder much of the blame’ for late-trading and market-timing abuses.”

“While brokers and others may have aided in the wrongdoing, Mr. Roye said fund-industry insiders knew what was going on, and yet they ‘turned a blind eye’ to it.”

” ‘Ultimately, as a result, fund shareholders have suffered and long-term damage has been done to the industry,’ Mr. Roye said in remarks at a meeting of the Investment Company Institute, the mutual-fund industry’s largest trade organization.”

“Market timing, which involves the rapid buying and selling of fund shares in an attempt to take advantage of fund pricing discrepancies, isn’t illegal. But most funds discourage or ban the practice because it can reduce performance for long-term fund investors.”

“Late trading involves giving the same day’s share price on buy and sell orders placed after 4 p.m. Eastern time, a practice that is illegal.”

“Since the fund-trading scandals became public last autumn, the SEC has proposed rules to combat trading abuses, including requiring orders to be in the hands of a fund company, rather than in those of an intermediary, by 4 p.m. to get that day’s share price.”

“Mr. Roye said the SEC has received about 1,000 letters on the so-called hard 4 p.m. close, with many opposed to it. He said the SEC is studying alternatives to the plan.”

“He also said the SEC plans to expand its staff of fund inspectors and has created a task force to consider ways to improve oversight of fund companies, for instance, by requiring them to supply more information on a more-frequent basis. Use of technology to aid in fund-industry oversight also is being considered, he said.”