NEW YORK (AP) – An arm of the Alliance family of mutual funds suspended two employees following an internal probe and said it was cooperating with authorities who are investigating shady tradingpractices.
The two workers were suspended from Alliance Capital Management Holding LP, investment adviser to Alliance mutual funds, after the internal probe found conflicts of interest in so-called “market timing” transactions, the firm said Tuesday.
Alliance Capital said it is cooperating with New York Attorney General Eliot Spitzer and the Securities and Exchange Commission, who have been investigating market timing and after-hours trading of mutual fund shares. Regulators say the use of these trading practices by hedge funds have cost mom-and-pop investors billions in lost profits.
Market timing involves short-term trading of mutual fund shares, which is detrimental for the long-term shareholders. While not illegal, it is banned by many mutual funds. Late trading, which is against SEC regulation and illegal in New York, involves purchasing mutual fund shares at the closing price after the New York markets shut down. They are supposed to be sold at the next day’s price.
Based on preliminary results of its own investigation, Alliance Capital said it had identified conflicts of interest in certain transactions and suspended a portfolio manager of the AllianceBernstein Technology Fund and an executive involved with the sale of Alliance Capital hedge fund products. The names of the two employees were not released.
In addition, the company’s board appointed a special committee to review information relevant to the state and federal investigations.
Last month, Spitzer alleged that hedge fund Canary Capital Partners made special arrangements with several large mutual fund companies to make profitable after-hours trades using market timing. Canary and its managing principal, Edward J. Stern, agreed to pay $40 million to settle the charges.
Spitzer and SEC enforcement director Stephen Cutler have said they believe such arrangements are widespread within the mutual fund industry, and their investigations are continuing.
Alliance Capital provides investment management services for many of the largest U.S. public and private employee benefit plans and is one of the nation’s largest mutual fund sponsors.
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