Front Running and Pre-Released Data at the University of Michigan
Commentary provided Paul Hauck, CEO,



One of the most widely cited and watched market sentiment indicator's is the University of Michigan's Consumer Sentiment Survey. A great deal is taken for granted with this survey since it has established itself within the financial media as a reliable and consistent indicator of monthly consumer sentiment. We hoped that the media would conduct a little 'investigative journalism' on this report and the individuals surrounding the information the University presents. Since we have little to no faith of that happening any time soon, we went ahead and did our homework so that investors can know the truth behind the numbers.

First of all, the University of Michigan's preliminary consumer sentiment survey is based on telephone interviews with about 300 households around the country on personal finances, business and buying conditions, and is rounded out to 500 by month's end. The data is included in the Leading Indicator Composite Index published by the US Department of Commerce.

Would you consider a survey of 500 individuals a statistically valid sample? Apparently it is for the University of Michigan surveys, but a few years back when collected data from 500 investors for a number of surveys, both Reuters and CNBC vehemently questioned the validity of data based on such a 'small' number. (Current WhisperNumber sentiment data is based on a minimum of 1400 individual investors participating in its twice-monthly sentiment surveys.)

But let's put the numbers aside for a moment. Aside from the Consumer Sentiment survey, the University of Michigan is involved with a number of other consumer surveys - the second best known is the University of Michigan's Consumer Satisfaction Index. It was 'disclosed' earlier this year that the Director of this University of Michigan survey, Professor Claes Fornell, a well-known and distinguished professor at the University of Michigan, had been front running stock trades prior to the service being released. In a statement, the University admitted that Professor Claes Fornell has been 'purchasing stocks two weeks in advance of the reports being released' (this is better known as 'front running' a highly unethical and oftentimes illegal action, and is similar in nature to the current mutual funds scandal in the news now). It was reported that Fornell had been doing this for 3 years.

We couldn't find much 'press attention' on this story, which was surprising, given the magnitude of attention that the media provides to the Michigan surveys. However, and not surprisingly, we did find one 'shockingly' sympathetic ear in support of Fornell and his front running tactics from a reporter. In an article, published in February of this year, CBS Marketwatch reporter Michael Collins stated:

"…Fornell wanted to test the findings with "real money" -- his own. That is admirable, and I wish more academic researchers would do it…". (For the full (and pathetic) Marketwatch story, click here.)

The reporter (Collins) went on to say that he hoped this potential scandal would not hurt the survey, as it is a 'valuable tool for investors'.

Our response to this type of journalism is simple - outrageous and pathetic. It's almost as if the reporter at CBS Marketwatch is condoning 'stock front running' and is attempting to soften the seriousness of a highly unethical (and often repeated) transgression. Once again, so much for journalistic integrity! (One also has to wonder what would prompt a reporter to take such a strange view on this issue.)

So we contacted the Deans office at Michigan to learn more. Apparently, they had just 'temporarily' suspended Prof. Fornell from managing the survey while an investigation was pending, but they wouldn't say anymore. As of today, they still have no comment, no investigation results, and no word on Fornell. What we have learned is that Fornell is still at Michigan and is still very much associated with the survey maintaining his position as Director. (The University of Michigan website of course makes no mention of the front running charges or any changes to the practice.)

The story doesn't end there. We also found out that the University of Michigan has been selling Mr. Fornell's data to investment banks, analysts, and brokerage firms for up to $30,000 a year. The brokerage firms and banks receive the data two weeks prior to it being released to the investing public (and the media). (This practice of selling data to investment banks and other subscribers is carried over to the better-known Consumer Satisfaction survey as well.)

This represents an incredible conflict of interest with equal significance to the front running charge. So essentially, the reports are issued to the media, who then releases them to the public, with the spin that this is 'breaking news' or hot off the presses. This is clearly not the case and proves another example of how the consumer and the individual investor are once again getting the short end of the stick.

And by the way, these are state University sponsored research programs. So the US consumer (people just like you and me) and the residents and students of Michigan are footing the bill to be the last to know about the data. One more great deal for the investing public!

Now if front running and 'early selling of data' to the corrupt financial firms aren't bad enough, let's think about this: If the University of Michigan is willing to completely overlook and apparently forgive stock front running (which by all accounts may still be a part of Mr. Fornell's current 'direction') for the Consumer Satisfaction Index, is there a possibility that 'front running' could be occurring with the better known, 'Department of Commerce included', Consumer Sentiment Survey? (Just remember, everyone thought it impossible for the Mutual Fund industry to be corrupt up until a few months ago.)

So what have we learned? Even University studies and their well-paid directors aren't immune to the same corporate greed that we have seen mutate throughout Wall Street in the past decade. The media continues to propagate and allow the same reports to be issued with the same spin, month after month after month. Who loses? Individual investors.

As for the University of Michigan, we're not surprised with their initial cover up mentality. After all, it was recently released that the President of the University of Michigan is the highest paid leader of any state college making over $675,000 a year - wouldn't want to rock the boat with that salary, now would we?

We think that the times of fines, settlements, or leaves of absences are over. Somebody has to take the leadership and put a number of these organizations out of business. That means close them down. Whether it's Putnam or Strong Mutual Funds, Smith Barney or The University of Michigan Consumer Survey, enough is enough. We know that this type of action means somebody's job, maybe even thousands of jobs. But in the meantime, you, the investor, are being misled and billions of your dollars are being mismanaged, stolen, and misappropriated.

Some primary contact information you may find helpful:
University of Michigan:
Professor Claes Fornell,, (734) 763-5937 (You may want to ask if he is still front running and if he ever received any punishment for doing so.)
Richard Curtin, Director of Consumer Sentiment Survey,, (734) 763-5224 (You may want to ask if he is allowed to front run, and if he believes it fair to sell the data prior to public release.)
Bernie DeGroat, University of Michigan Business School Media Contact,, 734.647.1847 or 734.936.1015 (See if you can get an answer as to any disciplinary action taken against Prof. Fornell, and/or if Mr. DeGroat front runs on the data as well.)

Marketwatch: (unsure if he is still there)



You can't rely on insiders and politicians to help protect you from atrocities that are now a common occurrence on Wall Street. These events are orchestrated and the people being hurt the most are individual investors. The Wall Street 'administration' hasn't changed, the SEC has yet to protect or reimburse you, and the media tows the party line.

You can, however, make sure your voice is heard. Don't hesitate to send an email, a letter, or even make a phone call. The education you can gain with these simple acts will pay off in the long run. And sitting on your hands and doing nothing? Well, we'd have to say you get what you deserve.


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