Deal Reportedly Near In Mutual-Fund CaseDec 17, 2003 | AP Alliance Capital Management is nearing separate settlements with federal and New York state regulators in an improper mutual-fund trading case that could result in a payout of $600 million.
A source familiar with the matter said yesterday that Alliance has completed a deal with New York Attorney General Eliot Spitzer's office to pay a $250 million fine and to reduce management and other fees charged to investors by $350 million over five years to settle charges it allowed certain investors to engage in market timing.
The Securities and Exchange Commission (SEC), which is also investigating Alliance, had yet to sign a deal but was close, said the source, who spoke on condition of anonymity. The source said a joint announcement of both settlements could come as early as this week.
Spitzer's office declined to comment yesterday, as did the SEC. A message left with Alliance was not immediately returned.
If the settlements are completed, they would be the most high profile and expensive in what has turned into an industrywide scandal for the once pristine mutual-fund industry.
State and federal regulators have issued dozens of subpoenas as part of investigations into illegal late trading after the market's close and market timing a type of in-and-out trading that is not illegal but widely prohibited by many fund companies because it skims profits from long-term shareholders.
Regulators have said firms that officially restricted market timing but made selective exceptions committed fraud.
Formal accusations have been brought against Putnam Investments, Pilgrim Baxter & Associates and Prudential Securities, and many other fund companies have said they are facing possible charges including Alliance.
Alliance is one of the nation's largest money managers, with $456 billion in assets under management as of Nov. 30, primarily for pension funds and other institutional customers.
The company also manages mutual funds, many under the AllianceBernstein brand, and owns money manager and research firm Sanford C. Bernstein.
Although Alliance has not been formally charged with wrongdoing, it has acknowledged that market timing occurred, to the detriment of shareholders, and that there is a "high likelihood" that it will face sanctions and penalties. Last month, the company took a $190 million charge for restitution and litigation costs associated with its market-timing activities
It also ousted John Carifa, president and chief operating officer, and Michael Laughlin, chairman of Alliance Capital's mutual-fund distribution unit.