October 6, 2003
Alliance Suspends Two in Fund Timing Investigation
Admitting conflicts of interest regarding mutual fund trades, Alliance Capital last Tuesday said that it had suspended both a hedge fund executive and portfolio manager.
The industry giant also admitted that New York State Attorney General Eliot Spitzer has contacted it as part of his investigation into market timing and late trading.
Alliance Capital, with an estimated $430 billion in assets, said in a statement that based on the preliminary results of its own ongoing internal investigation concerning mutual fund transactions, it has identified conflicts of interest in connection with certain market-timing transactions.
The suspended portfolio manager had overseen the AllianceBernstein Technology Fund, while the executive sold company hedge fund products. The company's board of directors has formed a special committee comprised of members of the audit committee and independent directors to look into the matter.
Morgan Fires Managers for
Inferior Fund Performance
At least a dozen portfolio managers for Morgan Stanley Investment Management were terminated from their posts last week.
The performance history of the fired managers played a key role in who went, said Morgan Stanley spokeswoman Connie Kain. The dismissals were not related to any one investment sector or a realignment of the firm's offerings but had more to do with cost-savings and the performance of the individuals, Kain said.
Among the managers let go were Jeff New, who managed $2 billion at the firm's Van Kampen unit, along with two of his reports, Michael Davis and Sean Conner, Kain went on record as saying.
Kain added that the terminations were in the works prior to the recent arrival of new Morgan Stanley President of Global Services Bill Ennis. No additional terminations have been scheduled, Kain said.
Janus Admits 12 Accounts
Timed its Mutual Funds
A Janus internal review has revealed that it allowed 12 accounts to engage in market timing, although only four of those engaged in frequent trading, Janus CEO Mark Whiston said in a statement to shareholders. All of these arrangements have been terminated and employees who allowed them have been fired, he added.
Janus, along with the three other fund firms named in New York State Attorney General Eliot Spitzer's probe - Bank One, Nations Funds and Strong - has pledged they will reimburse shareholders hurt by improper trading. Janus has said that it earned $1 million in management fees in connection with these improper trades.
SEC May Impose Rules
Against Improper Trading
Securities and Exchange Commission Chairman William Donaldson testified before the Senate Banking Committee last Tuesday that the commission is studying possible rules to thwart market timing and late trading, the issues at the epicenter of the New York State attorney general's investigation.
"Our staff is studying whether we need measures to prevent the circumvention of forward pricing requirements for fund shares and market-timing restrictions," Donaldson said. This includes a vigorous "action plan" that involves working closely with state prosecutors.
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