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Alliance Capital Ousts Two Top Executives Amid Probe

The firm, which found improper mutual fund trading, hopes to resolve matters with state and federal authorities.

November 11, 2003|From Reuters

NEW YORK — Alliance Capital Management said Monday that it dismissed two senior executives for allowing improper trading of mutual fund shares, as federal and state probes into the fund industry claimed more victims.

Alliance, which has $438 billion in assets under management, said the two executives had responsibility over its Alliance Capital mutual fund unit.

The move follows the departure earlier this month of top executives at two other fund groups accused of improper trading. Richard S. Strong stepped down as chairman of Strong Mutual Funds on Nov. 2, and a day later Lawrence Lasser was ousted as president and chief executive of Putnam Investments.

New York-based Alliance said John Carifa resigned as president, chief operating officer and director of Alliance Capital and as chairman of the board of its mutual funds. Michael Laughlin resigned as chairman of Alliance Capital's mutual fund distribution unit. Alliance said it requested the resignations.

"They had both senior and direct responsibility over the firm's mutual fund unit, which, as previously reported, allowed inappropriate market-timing transactions, some of which had an adverse impact on mutual fund shareholders," Lewis Sanders, Alliance Capital's chief executive, said in a statement.

An Alliance spokesman had no additional comment.

Market timing is rapid trading on discrepancies between a fund's listed price -- usually set once a day -- and the value of its underlying securities. The practice is not illegal, but some funds allowed favored investors to engage in timing even though the firms have formal policies barring it.

Last week, Alliance said it had uncovered instances of market timing and that it hoped to resolve matters with the Securities and Exchange Commission and the New York attorney general's office.

Any settlement probably would include sanctions, penalties and restitution to mutual fund shareholders. The SEC and regulators from New York and Massachusetts are leading the wide-ranging probe.

Alliance shares fell 85 cents to $30.90 on the New York Stock Exchange.

Also Monday, a source said Merrill Lynch & Co. had fined two managers who had responsibility for brokers the firm recently fired for making improper mutual fund trades on behalf of hedge fund Millennium Partners.

Merrill fined Curtis Brown, now regional director in San Francisco, and Andy Williams, who oversees Merrill's mid-Atlantic region, the source said. One fine was $150,000 and the other was $100,000, the source said, although it was not clear who paid the higher amount.

The fines were reported earlier Monday by the New York Post, which quoted a source as saying they could run as high as $250,000 each.

Both executives still work at Merrill Lynch, although neither returned a call for comment. A Merrill spokesman declined to comment.

On Oct. 3, Merrill fired three brokers who worked at a New Jersey office after an internal review found that they helped Millennium engage in market timing. Those dismissals came one day after a Millennium trader, Steve Markovitz, pleaded guilty in New York State Supreme Court to making illegal mutual fund trades.

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