The Dangers of Relying on a Legal List: A Case Study of the West Virginia Consolidated Investment Fund

Since the mid 1970s, many local governments have begun using state-run local government investment pools for their cash management needs. Some pools operate under statutory limitations on investment instruments known as legal lists, other pools operate either under a Prudent Person Rule standard, while others use a combination of the two. This article examines the potential dangers of an investment pool relying too heavily upon a legal list fiduciary standard, by examining the West Virginia Consolidated Investment Fund, which lost nearly 25 percent of its principal in a financial scandal during the 1980s.