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A Review of the Article "The Dangers of Relying on a Legal List: A Case Study of the West Virginia Consolidated Investment Fund"
Finance & Accounting
Pages 4 (1004 words)
A Review of the Article “The Dangers of Relying on a Legal List: A Case Study of the West Virginia Consolidated Investment Fund” by Vernon Hayes The primary objective of the article “The Dangers of Relying on a Legal List: A Case Study of the West Virginia Consolidated Investment Fund” by Vernon Hayes is to use the example and cautionary tale of the West Virginia Consolidated Investment Fund and the financial and political scandal that it had undergone to demonstrate the pitfalls of relying on a “Legal List” of permissible investment instruments, rather than operating under the “Prudent Person Rule”.
The story began in 1978, when local governments were encouraged to pool in their investment money with the West Virginia State in the Consolidated Investment Fund, managed by the West Virginia Investment Management Board. At first, the local governments were reaping massive returns. In 1984, James Manchin became State Treasurer. The guidelines imposed on the Consolidated Investment Fund were at first very strict: only investments with a maturity date of no longer than ninety days can be entered into by the Fund to protect against market fluctuations. However, because Manchin and his deputy, Margolin wanted to make more aggressive investment strategies, the maturity was extended to ten years. The investment strategy became bolder and the fund engaged in heavy-volume, short-term treasury securities trading (ibid at 52). There was also heavy reliance on futures contracts. ...
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