Investor Paybacks Small and Slow

That is why Spitzer said in December 2002 that he viewed class-action suits and arbitration claims as a better avenue for investors. He said his biggest achievement in his research probe was to provide a "road map" for investors to make their own claims.

But few investors have won arbitration cases claiming they lost money based on allegedly biased research. In almost every case, the claims have been dismissed, and investors have been stuck with thousands of dollars in legal bills.

Meanwhile, a federal judge is considering a distribution plan for investors shattered by the 2002 WorldCom bankruptcy. The company has turned over $500 million in cash and $250 million more in stock to be doled out to shareholders who lost the most money and who have little chance of recovering it through ongoing class-action lawsuits and bankruptcy proceedings. Richard C. Breeden, a former SEC chairman who is to apportion the money, did not return calls for comment about the pace of the payouts.

Citigroup Inc. on Monday said it would pay WorldCom stock and bond holders $2.65 billion to settle a class-action suit faulting the bank for keeping investors in the dark about WorldCom's finances. The settlement means investors won't have to wait years for the case to be resolved, but it is not likely to provide more than a few cents on the dollar. Class-action suits against other banks that helped finance WorldCom and Enron are ongoing.

Investors who lost billions of dollars in the collapse of Enron will have to wait longer for restitution. The SEC has collected $430 million so far in settlements with investment banks and former employees of the Houston energy company, but the agency is awaiting more settlement money before it begins to allocate it, said spokesman John Nester. In the meantime, Nester said, the $430 million is collecting interest in an account overseen by a federal judge.

Roper of the Consumer Federation stressed that consumer groups support SEC and Justice Department efforts to use fines and penalties to compensate shareholders for their losses. But, she said, "restitution only really works when you have identifiable victims, quantifiable losses and funds available to provide restitution that bear some semblance of equating to the losses."

In another series of high-profile settlements with mutual fund companies accused of trading improprieties, the SEC is collecting tens of millions of dollars. Officials who will distribute the funds are still being appointed in many of the cases, an agency spokesman said. That is prompting questions among shareholders and observers.

"We don't have any idea how that money is finding its way back into shareholders' pockets or how it's being allocated," said Mercer E. Bullard, a professor at the University of Mississippi School of Law and a vocal critic of mutual fund abuses. "We don't really know whether these are political settlements, or whether there's some relationship between the fine and the abuse."

The mutual fund scandal has involved two principal types of abuses: illegal trades after the markets were closed and market timing.

Bullard said regulators should be able to measure mutual fund investor losses by tracking improper late trades and evaluating changes in value of the funds' portfolios on those days. Bullard said it may be more complicated to value damages to investors from market timing, or frequent trading in and out of funds, often to take advantage of stale prices of the fund shares. But he said various academic studies provide a basis for the assessment. Market timers sought to exploit discrepancies in pricing to the harm of average investors, who saw the value of their shares diluted and their administrative costs rise.