SF Gate Piece on SpitzerI'm posting this as I think it has a pretty good sum up of the (not illegal) market-timing problems.
Any time you have a situation where an investor feels that someone can do something that she cannot, you're going to have an unstable marketplace. That investor will lose faith and withdraw her money. I don't care if she lost $5 or $500,000, the average person knows what is unfair and will react accordingly.D
While there is nothing illegal about market-timing itself, fund industry experts
say such activity by a small group of people hurt the vast majority of ordinary investors by increasing the funds' trading costs. It also often forces fund managers to buy or sell securities against their will by suddenly pouring large sums of money into funds only to withdraw them soon after.[...]
Many mutual fund investors have assumed that everybody -- whether a hedge fund or an individual -- has been on a level playing field. Spitzer's announcement showed it may have been otherwise.
Any time you have a situation where an investor feels that someone can do something that she cannot, you're going to have an unstable marketplace. That investor will lose faith and withdraw her money. I don't care if she lost $5 or $500,000, the average person knows what is unfair and will react accordingly.D