Alliance Capital Management has ousted two senior executives after the group came under investigation for alleged improper trading of mutual fund shares.
John Carifa, chief operating officer and chairman of Alliance’s mutual fund board, and Michael Laughlin, its chief of mutual fund sales, are the latest executives to be forced from their jobs as groups implicated in US regulators’ probe into mutual fund scandals try to restore the confidence of their investors.
On Monday, Lewis Sanders, chief executive of Alliance, said: “Our supervisors’ utmost obligation to protect the best interests of our clients cannot be compromised at any level of the firm for any reason”.
Alliance Capital, which manages about $38bn in mutual fund assets and is controlled by the French insurer Axa, admitted on Monday that it will likely face “sanctions and penalties” before it is able to end the regulatory investigation into its mutual fund business. Last week, it said it receivednotice from the Securities and Exchange Commission that they could face civil charges for improper mutual fund trading.
Companies named by the SEC and Eliot Spitzer, New York’s attorney-general, are now mounting a public relations offensive to regain the faith of investors wary of putting their money in the hands of managers at groups implicated in the scandal.
Putnam Investments, the first mutual fund group to face civil charges, has lost billions of dollars in assets in recent weeks as retail and institutional investors have withdrawn their money because they doubt the firm’s ethics.
In response, the fifth-biggest US mutual fund firm placed full-page advertisements yesterday in The Wall Street Journal and The New York Times. They were headlined “We’re changing Putnam Investments. For the investors. For the employees. For the better”.
“Putnam will lead the mutual fund industry in reform,” the advertisement pledged. “We will restore accountability, integrity and confidence.”
Alliance Capital first emerged as a target in the probe by Mr Spitzer and the SEC last September when it suspended two executives after finding evidence of “conflicts of interest in connection with certain market timing transactions”. The two executives were the portfolio manager of its $3.2bn AllianceBernstein Technology Fund and an executive who sold hedge fund products.
The departures of Mr Carifa and Mr Laughlin, two of the most prominent executives at Alliance, come on the heels of high-profile resignations at other firms.
Lawrence Lasser, the chief of Putnam Investments, was ousted recently and Richard Strong, who runs Strong Capital Management, stepped down as chairman of Strong Mutual Funds after he was accused of using market timing to make money for himself.
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