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Ex-Alger Exec Sentenced

1st Prison Term In Mutual Fund Scandal

Dec 18, 2003 | Newsday

Formerly the vice chairman at Fred Alger Management in Manhattan, Connelly, 40, was sentenced in Manhattan by State Supreme Court Justice James Yates to 1 to 3 years in prison for tampering with evidence associated with the investigation into illegal and improper mutual fund trading. Connelly, who faced a maximum of 4 years in prison, pleaded guilty on Oct. 16 to the felony and agreed to pay a $400,000 civil penalty and be barred from the industry for life.

Connelly resigned after 16 years at the firm when an internal review found evidence of illegal late trading in four Alger mutual funds. Connelly also tried to conceal trading arrangements between his firm and Veras Investment Partners, a hedge fund, according to New York State Attorney General Eliot Spitzer's office, which along with the Securities and Exchange Commission negotiated the plea. He also directed subordinates to delete e-mails and falsely report facts relevant to the investigation.

Yesterday's sentencing shows the seriousness by which regulators and the courts view the crimes, said a spokeswoman for Spitzer. Though Connelly's prison term was based on evidence tampering and not market timing, industry observers said it should send a message to others.

Connelly was among the first to fall in the 3-month-old scandal, which has engulfed more than a dozen mutual fund families and brokerage houses, including Putnam Investments and Prudential Securities. State and federal regulators, who have subpoenaed scores of firms, are investigating illegal late trading mutual fund trades made after the 4 p.m. deadline that get that day's price rather than the next day's and improper market timing, in which firms waive their rapid trading rules for certain large investors.

Several executives, including mutual fund firm founders Richard Strong, Gary Pilgrim and Harold Baxter, have had to step down because of the probe. Connelly, however, is the highest-level executive to plead guilty.


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