Alliance Capital Management has requested the resignations of two senior executives because they failed to prevent improper trading in its mutual funds.
The two executives John Carifa, president and chief operating officer of Alliance, and Michael Laughlin, chairman of its funds distribution division were dismissed on Monday as the company scrambled to reach a settlement with regulators who are considering action against it.
Alliance, based in New York, confirmed last week that it had received a notice from the U.S. Securities and Exchange Commission that the commission’s staff was preparing to take action against the company and giving Alliance a chance to refute any accusations.
Alliance was supposed to respond to the SEC notice last week, people briefed on the investigation said, but the company’s lawyers asked for more time.
Alliance is trying to reach a settlement with the SEC and the New York State attorney general’s office, though these people said there was still a good chance that regulators would take action against the company, perhaps as soon as next week.
Regulators were looking at which executives at Alliance were aware of rapid trading in and out of the company’s mutual funds by at least two investors Daniel Calugar of Las Vegas and Edward Stern, a hedge fund manager who reached a settlement with the attorney general, Eliot Spitzer, in September.
Executives at Alliance may have permitted Calugar to trade in and out of Alliance’s funds in return for investments in the company’s hedge funds, people briefed on the matter have said.
Regulators are looking into whether Alliance’s chairman, Bruce Calvert, was aware of the arrangement.
Carifa and Laughlin were asked to resign by Alliance’s board because of their role in overseeing Alliance’s mutual fund business and their failure to prevent the improper trading in Alliance funds, according to a statement by the company Monday.
Carifa, 58, had been with Alliance since 1971, it said, and Laughlin, 56, since 1987.
Alliance’s chief executive, Lewis Sanders, said in the statement, Our supervisors’ utmost obligation to protect the best interests of our clients cannot be compromised.
Alliance suspended two other executives at the end of September for their roles in improper mutual fund trading. While the company did not identify the executives, a person briefed on Alliance’s own investigation into fund trading identified them as Gerald Malone, manager of the Alliance Bernstein Technology Fund, and Charles Schaffran, who oversees marketing for Alliance’s hedge fund division.
The company said on Monday that it was cooperating with regulators and was continuing its own investigation into fund trading. But Sanders acknowledged in the statement, There is a high likelihood that Alliance Capital will face sanctions and penalties as the firm works to bring this matter to a close.
