NEW YORK (CNN/Money) -
Alliance Capital Management has suspended two employees as a result of an internal investigation into "market timing" transactions, and it has been contacted by the Securities and Exchange Commission and the New York State Attorney General, the mutual fund firm said Tuesday.
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Alliance said its board had formed a review committee and that it is cooperating with the SEC and New York Attorney General Eliot Spitzer's investigations into "market timing," or quick trading in mutual fund shares to take advantage of market inefficiencies. Though legal, experts say such trading undercuts the profits of long-term investors in mutual funds.
The Alliance statement did not name the employees, who it said were suspended because of "conflicts of interest in connection with certain market timing transactions," but said one is a portfolio manager of the AllianceBernstein Technology Fund and the other is an executive involved with selling Alliance Capital hedge fund products.
Alliance, a unit of Alliance Capital Management Holding (AC: Research, Estimates), is one of the world's largest mutual fund firms, with $427 billion in assets under management as of July 31, 2003.
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| New York AG Spitzer turns toward Alliance Capital. |
New York-based Alliance Capital has faced scrutiny in recent years for some of its investment picks. The company was a large shareholder of WorldCom Inc. and Enron Corp., both of which filed for bankruptcy after accounting scandals. A former Alliance Capital executive, Frank Savage, also sat on Enron's board.
Company spokesman John Meyers declined to identify the two employees or provide any other details about the investigation.
The company's Web site identifies the technology fund manager as Gerald Malone, who has overseen the roughly $3.2 billion portfolio since February 1992. Malone, a senior vice president at Alliance Capital Management, manages several technology mutual and hedge funds at Alliance, according to his biography on the company Web site.
Malone could not immediately be reached for comment by telephone. An e-mail message sent to his office address was not immediately returned.
Alliance Capital also said it has set up a special committee to direct a review of "the facts and circumstances relevant" to the investigations by the SEC and the New York attorney general.
In a civil complaint filed in early September, Spitzer accused mutual fund managers at Bank One (ONE: Research, Estimates), Janus (JNS: Research, Estimates), Strong Financial, and Bank of America (BAC: Research, Estimates) Nations Funds of illegally giving Secaucus, N.J.-based hedge fund Canary Capital Partners special privileges to make illegal trades, in return for fees.
Without admitting or denying wrongdoing, Canary and Stern agreed to pay $30 million in restitution and a $10 million penalty to settle the suit, but Spitzer's investigation into fund managers has since widened and been joined by the SEC.
--from staff and wire reports
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