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Axa Unit Is Ready To Settle With Regulator

Dec 14, 2003 |

Alliance Capital, which is owned by Axa of France, is poised to become the second big mutual fund group to settle with regulators over allegations of improper trading in its fund shares, and possibly the first to pay a fine.

The group, which has not been charged, has been in settlement talks with both the Securities and Exchange Commission and the office of Eliot Spitzer, New York attorney-general.

Alliance has set aside $190m to cover the costs of the investigation the biggest amount of any fund group to date. It has reportedly offered more than $200m to regulators to settle the matter.

The SEC is negotiating for Alliance to pay a fine, which would make it the first fund group to do so. Putnam settled with the SEC but has not yet been fined. However, Mr Spitzer, who has recently put fees at the centre of his inquiry, has separately been negotiating for Alliance to lower its fees as part of its settlement.

The regulators are under pressure to arrive at a joint settlement after the furore caused by the SEC's unilaterally settling with Putnam last month. Mr Spitzer was publicly critical of that move, saying Putnam had been let off too lightly.

Alliance, which is one of the biggest fund managers in the US with $456bn in assets, has higher than average retail fees and some advisers had steered clear of its funds for this reason.

The average expense ratio per cent of assets charged by Alliance funds each year is about 1.8 per cent, compared with an average of 1.3 per cent of all funds, and less than 0.3 per cent charged by indexed funds such as Vanguard. This is before the funds' costs of trading, which is taken out of investors' money before their returns are tallied.

Alliance shares have fallen by 12 per cent since it was named as one of many funds to allow outside investors to arbitrage its fund shares, in contravention of its own policies which discouraged such market timing.

Investors pulled $790m from its mutual funds in November, but its assets rose slightly because the stock market continued to rise.

Five fund groups have been charged and at least another dozen remain under investigation by regulators over the scandal, the biggest to have hit the $7,000bn mutual funds industry in 60 years.

The Alliance settlement could be a blueprint for further settlements with companies such as Janus, which also have not been charged but have been named as having allegedly struck deals with market-timers.

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