U.S. regulators are weighing action against Alliance Capital Management for improper trading of mutual funds that was done with the knowledge of top executives, according to people briefed on theinvestigation.
The New York State attorney general, Eliot Spitzer, and the Securities and Exchange Commission are looking at frequent trading in and out of Alliance’s funds by a Las Vegas investor as well as by Edward Stern, a hedge fund manager who reached a settlement with Spitzer in September.
Alliance recently received a so-called Wells notice from the securities commission. It informed the firm that the commission staff was prepared to recommend that action be taken against Alliance and gave the firm a chance to refute any accusations. The firm must respond to the notice this week, a person briefed on the inquiry said.
Alliance would be the second mutual fund company to face regulatory action in the widening investigation of trading in the industry. Last week, the securities commission and the secretary of the commonwealth of Massachusetts filed a civil suit against Putnam Investments for failing to prevent improper trading by its portfolio managers. The chief executive of Putnam resigned on Monday, though the company denies any wrongdoing.
Alliance, which manages $438 billion in assets, has said that it is cooperating with regulators.
The authorities are also weighing action in the coming weeks against Security Trust of Phoenix, which acts as an intermediary in the trading of mutual funds on behalf of institutions.
At least some of the trading under investigation at Alliance was by a Las Vegas investor named Daniel Calugar, who ran a small brokerage firm called Security Brokerage. At the peak of his trading with Alliance, Calugar may have traded more than $100 million in and out of Alliance mutual funds, in return for $20 million worth of investments in the company’s hedge funds, people briefed on the matter said Tuesday.
Over the last year, Alliance began reducing the amounts Calugar could trade, until he abruptly closed his account a few months ago, one person said.
A recorded message at Security Brokerage’s offices indicated that the firm had shut down but did not provide a forwarding number. Calugar did not return a message left for him at a number in Ponte Verda Beach, Florida.
