August 16, 2002

Fortney Pete Stark
Thirteenth District
California Congress of the United States
House of Representatives
Washington, D.C. 20515

Dear Mr. Stark:

I have written you several times in the past few years asking for a change in ERISA laws. My current 403b retirement plan only allows me to invest in mutual funds. I feel I should be able to make my own investment choices and not be forced to invest through a mutual fund. I have enclosed a copy of a letter I received from my mutual fund company stating that I have no choice, I must invest in a mutual fund; it's the law.

I realize I have written you several times and never gotten any action. However, I'm hoping that now you may have reconsidered after witnessing the corruption of Corporate America and the inability of the SEC and other governmental agencies to regulate effectively...before the meltdown.

I was told ERISA laws protected the retirement saver and ERISA laws were in the best interest to all. It is clear now that this is not true and holds no water: Fidelity (and all other mutual fund companies) has lost billions of their customer's money and that includes those who were "protected" by ERISA laws. ERISA laws provide no protection against mutual fund managers buying extremely overvalued stocks. Nor does ERISA protect retirement savers from fraud: mutual fund managers have lost billions in Enron, WorldCom, Imcone, and Global Crossing, and that means the mutual funds and their customers or their retirement savers "protected" by ERISA lost large sums of money as well.

I argue it has clearly be shown to all that regulatory bodies of the government, including the SEC, are not very good at their jobs, and therefore, retirement savers such as myself should be giving the opportunity to go around large corporations like mutual fund companies and maintain are own portfolios. That way we know exactly what's going on with our portfolios and don't have to tolerate the lack of "full disclosure" given us by large institutions such as mutual fund companies, nor do we have to tolerate investing in stocks that have price to revenues of 20 or more.

Granted, the main reason for ERISA is because the average Joe is said to not be financially literate and needs a mutual fund manager to take care of their investments for them. Why is that? Our schools teach children calculus so they can grow up and be good scientists and engineers, but they won't know anything about financial planning or investing.

For those of us who realize the only person who cares about their money is himself or herself, and have spent the time and money to learn about investing, should be given the chance to make are own stock selections.

Just today I was looking at Solectron and saw that its stock price is now 3 bucks, it was $50 two years ago. One of the data I checked out was institutional ownership; it's 86%. Institutions love losing other people's money, it's much better than losing their own money.

The Federal Government already takes 15% of my check (includes the 7.5% my employer gives in my name that doesn't even show up on my check) for Social Security. That is, the government is already 100% controlling a retirement fund of mine. Why must they control my other retirement programs like my 403b? After paying all my taxes, I don't have much left over to save, and what I do manage to save, why can't I invest it the way I want to?

From USA Today (July 8, 2002 pg. 2B), "Many broker-sold plans cost more, underperform." From a CNN Money article (June 22, 2002) titled, "Funds in Crisis," it was stated, "...shareholders are ready to revolt over everything from high fund expenses to disclosure on holdings to accounting blowups." From the same article: "The realization that your fund might own a blowup stock and you don't know it because of loose reporting requirements." And from Yahoo Finance (March 8, 2001): "BOSTON (Reuters) - While the profit figure [for Fidelity for 2000] was 115 percent higher than in 1999, the performance of Fidelity's funds was less than stellar."

Clearly, mutual fund companies have as many problems as the rest of Corporate America. Granted, for some reason that I can't figure out, Congress is asking analysts from Morgan Stanley and Merrill Lynch why they were recommending Enron and WorldCom, but Congress is not asking Fidelity's or Vangaurd's analysts why they were recommending, and their fund managers were buying, and holding Enron and WorldCom? I would think that since Congress makes retirement savers like myself invest through a mutual fund (see attached letter from Fidelity stating the law) that they would be more than interested in knowing.

Fidelity and Vanguard didn't have an investment banking relationship with Enron or WorldCom, but their retirement savers lost just as much and it makes little difference to them that Fidelity's and Vanguard's analysts simply made stupid mistakes and were not outright crooks.

What I have seen from Congress and the media regarding stock analysts is in reference to an investment banking relationship. That is, Congress and the media are not concerned about analysts making $20 million a year giving bad advice as long as the analyst was not involved in fraud. The media and Congress may not care, but I do, money lost is money lost, rather it's lost due to bad advice or fraud.

You may say take your money elsewhere, this is a "free market system." Unfortunately, the law regarding 403b plans says, "participants must invest through a mutual fund." Retirement savers under 403b plans have no choice except to give their savings to another mutual fund manager who maintains the same standards: buys blowup stocks, does not fully disclose, does not reply to customers specific questions, has portfolio turnover rates greater than 100%, and on and on.

Why must me wait until there are severe problems with the mutual fund industry, does it take another meltdown, before we do something? I know for a fact that some of us were writing our congressperson, the media, and the SEC about huge compensation packages for corporate executives and mutual fund managers buying extremely overvalued stocks before the stock market meltdown, but we were completely ignored.

Schwab has started an ad campaign telling the public that they have stock recommendation listings now, and their brokers are not influenced by any investment banking relationships. I have news for Schwab, the mutual fund managers, analysts, the media, and politicians. Even if you don't have an investment banking relationship it's not easy picking stocks.

Just 10 years ago Schwab sold themselves as a discount broker, a broker for those who made they own stock selections. I can still remember 10 years ago asking Schwab some questions about stocks and they offered no reply. However, with internet stock trading companies offering trades for 10 bucks and Schwab charging $30, Schwab had to come up with something. Schwab has no long-term track record at picking stocks, but is now marketing the company as a company that knows how to pick stocks. That's the free market system and I have no problem with that, but that's not the case with my 403b: I'm forced to invest only through a mutual fund company whose fund managers and analysts can't beat a simple index 80% of the time over the long-term.

When I wrote Fidelity asking two questions, I got no reply to my questions at all. Talk about "No Disclosure." I asked Fidelity why one of my Fidelity tech funds was holding EBAY, a stock that has a 20:1 price to revenue ratio. Even the best growth stock can't justify a 10:1, let alone a 20:1 price tag? Obviously, this is a valid question to ask, but Fidelity gives no answer. What are they scared of, if EBAY is a sound investment and is worth it, just explain that to me. But, they don't have to explain anything to me. I'm just a second-class citizen to them, and I'm not assuming anything here, I asked them several times and they offered no answer whatsoever.

And there is no way to avoid this. Mutual fund companies all have the same "Disclosure Rules." All mutual fund companies keep important information and so-called privilege information from their shareholders of their mutual funds. Since I am forced by law to only invest in a mutual fund, I will never be given full disclosure when it comes to my investments I have through my 403b plan at work.

My second and last question to Fidelity was about employee stock options. I simply asked them what they thought about CEOs resetting stock prices after the company's stock falls. For example, XYZ's stock is $150, but falls to $10. The compensation board simply voids the old stock options and reissues new options with a strike price of $10 or less. As soon as the stock recovers the employees are already back "in the money" whereas the common stock shareholders don't get back into the money until the stock gets back to $150. This resetting of strike prices is not even talked about in the media or Congress. And in my opinion it's a very big deal. It was bad enough that CEOs were driving up a company's stock to make billions of dollars, but quite another, to turn around after the company's stock drops by 80%, reissue new options with a lower strike price, and start to make even more money.

Since Fidelity is investing my money I thought I should know how Fidelity feels about this: I don't want my money invested in companies that reset strike prices of employee stock options so employees can continue to earn millions of dollars when common stock shareholders are still well below the stock's high.

Fidelity did not answer either of my two questions and I had already tried to get them answered from their representatives over the phone. When I asked, they simply replied, "They don't know." When I wrote them they completely ignored my questions.

I didn't have any luck getting my questions answered by Fidelity, maybe I'll have better luck with asking you a couple of questions:

1) Since ERISA laws state that a 403b participant can only invest through a mutual fund, doesn't it make sense that Congress would want to know why mutual fund companies were buying and holding Enron and WorldCom? Congress was interested in Merrill Lynch and Morgan Stanley's analysts, but not Fidelity's ($1 trillion under management) and Vanguard's analysts? If the answer is because Fidelity doesn't have an investment banking relationship with Enron or WorldCom, can I assume that when it comes to ERISA, ERISA does not protect me from fund managers making stupid mistakes, but ERISA still requires me to invest only through a mutual fund? Wouldn't it make more sense to let me invest my own money, I'm less likely to make mistakes, since it's my money I'm investing? What exactly does ERISA protect the retirement saver from?

2) In 1973 I enlisted in the U.S. military for a six-year enlistment. That was two years before Vietnam was over. I was 18 years old at the time and if I would have been sent to Vietnam, I would have served proudly. If my name would have ended up on the "Wall" in D.C. no politician would have lost any sleep over it. No problem, but I'm curious to know why those same politicians don't think that 30 years later, I'm not man enough to handle my own investments, that I need a mutual fund manager to do that for me? And don't forget the government has been taking money (currently 15%) out of my pay for Social Security ever since I was 18. They are going to keep taking it out until I'm 66 and 2 months old. Meaning, the government is already controlling 15% of my pay for my retirement and that is more than enough for a good retirement program and disability program when you look at the fact the government is taking the money out of my check for 48 years. But, controlling 15% of my pay isn't enough, what I have left over; you're still going to make me invest through a mutual fund when it comes to my 403b?

Here's a quote from a book I read 10 years ago:

"James Sterngold of The New York Times described the attitude of the CEO of E.F. Hutton: "...Fomon regarded Hutton's retail customers as sheep waiting to be sheared, and he often said so. He harbored no illusions about the quality of the firm's products. It was the same junk the other firms sold." (Stealing the Market, Martin Mayer, Basic Books, 1992, pg. 36)

I'll end with saying that I am not complaining about the ups and downs of the market. I'm not complaining because I invested all my retirement savings into my company's stock, watching it go up hundreds of percent via fraud, and then when the fraud is uncovered and my company's stock goes to zero, I complain to Congress about me losing all my retirement savings. What I am asking is for a change in the law stating that 403b participants can only invest through a mutual fund. From what I have seen in the last 15 years, the number one interest of mutual fund companies is themselves and not their customers. And if this is truly a free market system than let me make my own investment decisions and don't force me to invest through a company that could care less about me and my retirement.

Note: At the very least if there is anything that you believe is inaccurate in my letter please let me know. There are several people who read my web page and I pride myself on dealing only in accurate information.

Sincerely,