08/31/98 HOW TO KEEP MUTUAL-FUND MANAGERS HONEST

HOW TO KEEP MUTUAL-FUND MANAGERS HONEST

Gary Weiss's ''The SEC should keep fund managers honest'' (Finance, Aug. 3) is right on the mark in all but its push to restrict fund managers' personal trading severely--so that they may invest only in shares of mutual funds.
Full disclosure of the managers' personal holdings in the fund prospectus is long overdue--together with a code of ethics. But punishing the ethical managers because of the actions of a few bad apples will discourage fund managers in general, and will thereby hurt the fund holders. Furthermore, the bad apples will always be able to mask their trading activity through various schemes, making Mr. Weiss's suggested cure irrelevant.
The real answer to the situation is simply to make the codes of ethics uniform across the industry and to enforce them rigorously through the use of state-of-the-art technology. Rigorous self-enforcement is already in place at many of the leading-edge firms, which have successfully automated their personal trading compliance, making it necessary for all employees to ''pre-clear'' their trades to avoid any potential conflicts of interest.
These firms have invested heavily in technology to protect the interest of investors. Regulatory agencies have also invested in technology, including artificial intelligence-driven software, to root out illegal activity of a more surreptitious nature. Balancing the interest of the public and professionals in the fund industry is perfectly practical right now.
Mitchel Kraskin
President
Compliance Tools Inc.
New York