“As mutual-fund companies continue to settle charges that they allowed a few privileged investors to trade their funds at everyone else’s expense, ordinary fund holders stand to pocket billions of dollars in penalties and restitution,” writes Christopher Oster in today’s Wall Street Journal.

“But until recently, details of which investors would get the money have been exceedingly murky.”

“One piece of the equation has been known from the start. Profits earned by so-called market timers will be returned to investors in the funds hurt by the timing. Now there’s a new piece: In what is essentially a rebate, the fees paid by investors in those funds will also be returned.”

“That means some investors are likely to get a fee rebate even if they weren’t in the fund on a day that suspect trading took place. Instead, investors merely needed to be in the fund during the period that market timing occurred. Regulators say refunding fees is appropriate because even investors who weren’t hurt by market timing, had they known about the problems, would have sold the funds involved.”

“While refunding fees potentially increases the number of investors eligible for refunds, it also reduces the payouts each individual will receive.”

“The scandal, in which fund companies profited by allowing a few sophisticated traders to buy and sell shares in ways that hurt the returns of regular investors, has implicated as many as 20 fund companies and involved millions of investors.”

“So far, mutual-fund companies have agreed to settlements totaling more than $2 billion, with most of that money pegged to be returned to investors. That pot is sure to grow substantially, as 10 fund companies have yet to settle. Just last week, Pilgrim, Baxter & Associates, whose co-founder allegedly invested in a hedge fund that he allowed to time the firm’s PBHG Funds, agreed to a $100 million settlement with regulators.”

“Most investors will get less than $100 back. But that is still more money than many of them would have seen if the Securities and Exchange Commission, in an attempt to heap punishment on the fund companies involved in the scandals, hadn’t added potentially hundreds of millions of dollars to the sums that will be paid by the fund companies.”

“The SEC hasn’t said explicitly that all settlements in mutual-fund cases will include the return of fees. But the agency has left clear indications in recent weeks that investors will be paid in amounts that in some cases far exceed the actual losses they sustained as a result of market timing.”