Ex-Alger executive guilty of tampering
By RIVA D. ATLAS New York Times
Friday, October 17, 2003
A senior executive at Fred Alger Management pleaded guilty Thursday to a charge of tampering with evidence and agreed to pay a $400,000 fine to settle regulatory charges that he allowed investors to improperly trade in and out of the company’s mutual funds.
The criminal charge, brought by the New York attorney general, and the settlement with the Securities and Exchange Commission are the first involving a mutual fund executive since regulators began their broad investigation of the fund industry more than a month ago.
The Alger executive, James P. Connelly Jr., was director of sales and marketing at the firm, which manages more than $10 billion in assets. He is the third person to face criminal charges in the investigation, including a Bank of America executive, who has vowed to fight them, as well as a trader at the Millennium Partners hedge fund, who has pleaded guilty.
Executives said that Connelly’s guilty plea was particularly shocking within the fund industry given his leading role in Alger’s recovery after the Sept. 11, 2001, terrorist attack on the World Trade Center, where Alger had offices. Alger lost 20 of its 24 fund managers and analysts in the attack.
“I am bowled over,” said Geoffrey Bobroff, an industry consultant. “He was the guy who was traipsing around the country visiting with clients and potential clients.”
Alger fired Connelly, 40, of Chatham, N.J., after it uncovered evidence late last week that he tried to destroy incriminating e- mail messages soon after the regulators’ fund inquiry became public, according to a statement the firm released Thursday.
Connelly did not return calls placed to his home. His lawyer declined to comment.
According to documents filed Thursday by the SEC, Connelly arranged for “select investors” to engage in market timing through frequent, fast trades in and out of Alger mutual funds from the mid- 1990s until earlier this year. Connelly authorized the trading even though the funds’ prospectuses said investors could only trade in or out six times a year.
In return for allowing these short-term trades, Connelly asked investors to commit a certain amount of money to the firm for the long term, the SEC said. The short-term trading reached its peak earlier this year, with a dozen investors trading approximately $200 million in Alger funds, the commission said.
According to the SEC, one customer, Veras Investment Partners, was allowed to place $50 million in short-term trades in exchange for a $10 million long-term investment.
In a statement, a spokesman for Veras said that the hedge fund had received subpoenas from regulators and was cooperating.
Besides the fine, Connelly agreed to accept a lifetime ban from the securities industry. The state criminal charges to which he pleaded guilty carry a maximum jail sentence of four years.
According to the attorney general’s complaint, Connelly told Alger’s lawyers, who were responding to a subpoena from regulators, that he was not aware of any improper trading at the firm, even though he was aware of the Veras trading.
On Sept. 4, the day after Spitzer made his investigation into mutual fund trading public, Connelly asked an employee at the firm to “delete certain e-mails called for by the subpoena,” the attorney general’s complaint said. Connelly also told the employee to instruct others at Alger to do the same.
Besides market timing, regulators are investigating late trading in mutual funds, which involves buying or selling shares after the market close but at an earlier price. Veras also engaged in late trading at Alger, according to the attorney general’s complaint.
Alger is cooperating with the investigation.
