Oct. 17–A former top exec at money management firm Fred Alger Management, James Connelly, pled guilty to obstruction of justice charges and could face up to four years in prison.
In his plea, Connelly, 40, said he asked colleagues to destroy documents sought by state Attorney General Eliot Spitzer. The documents would have proven the firm arranged special trades for a hedge fund, violating even the firm’s own policies.
Connelly is free on $500,000 bail, which was secured by his house in Sag Harbor.
He also agreed to settle with the Securities and Exchange Commission, which includes a lifetime ban from the securities business and a $400,000 fine.
“I’m deeply concerned about the integrity of the industry,” said Burt Greenwald, a Philadelphia-based mutual fund consultant. “This is an industry that was built on a bedrock foundation of confidence and trust.”
Spitzer and the SEC have been probing mutual fund trading practices that Spitzer said cost small investors billions.
In his plea, Connelly said he “deceived Alger’s lawyers by concealing” the firm’s trading with Texas-based hedge fund Veras Investment Partners.
Connelly also told subordinates to delete E-mail messages, while coaching them on what to say during Spitzer’s probe.
Spitzer told the Daily News that he planned to seek jail time for Connelly at his sentencing, which is scheduled for Dec. 17.
Connelly is the third person in the last month to face criminal charges stemming from the mutual fund investigation.
As the investigation deepens, Spitzer said other criminal arrests are likely, while the attorney general also plans to bring civil or criminal charges against mutual fund firms.
“The record that is becoming evident suggests that the mutual fund industry had not been adequately examining its own governance,” Spitzer said.
Connelly is well-known in mutual fund circles for helping rebuild Alger after the company, whose headquarters were in the World Trade Center, lost 35 employees on Sept. 11.
He received the 2002 fund leader of the year award from Fund Action, a publication of Institutional Investor.
“This guy was held up as a role model,” said Don Phillips, a managing director at Morningstar. “That’s another thing that’s disturbing.”
By Barbara Ross and Daniel Dunaief
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