NEW YORK (AP) – Regulators examining shady practices in mutual fund trading have asked for information from Alliance Capital Management Holding LP, which suspended two employees Tuesday after aninternal investigation found conflicts of interest in “market timing” transactions.
Alliance Capital, investment adviser to the Alliance family of mutual funds, said it is cooperating with New York Attorney General Eliot Spitzer and the Securities and Exchange Commission, who have been investigating “market timing” and “late trading” of mutual fund shares. Regulators and experts say the practices could be costing mom-and-pop investors billions of dollars.
Based on preliminary results of its own investigation, Alliance Capital said it had identified conflicts of interest related to certain transactions and suspended two employees – a portfolio manager of the AllianceBernstein Technology Fund and an executive involved with the sale of Alliance Capital hedge fund products.
In addition, the company’s board appointed a special committee, made up of members of its audit committee and the other independent directors, to review facts and circumstances relevant to the state and federal investigations.
The firm did not identify the employees or say whether other funds were involved. A company spokesman would not elaborate.
Market timing involves short-term, “in and out” trading of mutual fund shares, which is detrimental for the long-term shareholders for whom mutual funds are designed. While not technically illegal, the practice is banned by many mutual funds.
Late trading, which is prohibited by federal regulations and New York’s Martin Act, involves purchasing mutual fund shares at the closing price after the New York markets shut down. Mutual fund shares are priced once a day, and under ordinary procedures, shares bought after 4 p.m. Eastern are held in reserve and sold at the next day’s price.
In a Sept. 3 complaint, Spitzer alleged that hedge fund Canary Capital Partners made special arrangements with several large mutual fund companies to make after-hours trades using market timing. Canary and its managing principal Edward J. Stern agreed to pay $40 million to settle the charges.
Spitzer and SEC enforcement director Stephen Cutler have said they believe such arrangements are widespread within the mutual fund industry, and their investigations are continuing. Spitzer’s original complaint named four fund companies, but dozens of firms have been subpoenaed. A former Bank of America broker was charged with the first criminal counts in the case Sept. 16.
Alliance Capital, which provides investment management services for many of the largest U.S. public and private employee benefit plans, retirement and pension funds, is one of the nation’s largest mutual fund sponsors.
The New York-based firm gained notoriety as Enron’s biggest institutional investor, holding some 43 million shares. With its former chairman sitting on the energy company’s board, Alliance continued to buy Enron stock even as it plummeted in 2001. A Florida pension fund that was among the biggest losers in the energy company’s collapse sued Alliance Capital last year to recoup more than $300 million. The firm has denied wrongdoing.
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Company Web site: http://www.alliancecapital.com
