Spitzer Plans Charges Against Several Firms
Updated from 9:19 a.m. EST
New York Attorney General Eliot Spitzer plans to file civil and criminal charges against several fund firms in the coming weeks. Alliance Capital (AC), Strong and Amvescap's Invesco unit will face charges, as well as trading platform Security Trust, a source confirmed.
Meanwhile, the whip came down on two high-level officials at Alliance Capital as the mutual fund firm scrambles to address the abusive trading scandal. The company said John D. Carifa -- the firm's president and chief operating officer, as well as a director of the company and the chairman of a separate board devoted to the firm's mutual funds -- has resigned, as has Michael J. Laughlin, chairman of Alliance's fund-distribution unit.
The news that Spitzer plans to file charges, first reported in the Financial Times, is the other shoe to drop since Sept. 3, when Spitzer's $40 million settlement with Canary Capital Partners revealed that four fund firms allowed the hedge fund to engage in improper trading of their funds.Security Trust and Strong were mentioned in the initial complaint, as was Janus (JNS), Bank of America's (BAC) Nations Funds and Bank One (ONE). Security Trust allegedly allowed Canary to "late trade" hundreds of funds, a clearly illegal practice that involves trading after the market's close but getting the pre-4 p.m. fund share price in violation of forward-pricing rules. The Invesco news may come as a surprise to some because the firm hasn't been named in any complaints. However, the mutual fund firm had been subpoenaed. And on Oct. 30, TheStreet.com published an article showing that several Invesco funds raised red flags over potential market timing, based on Lipper data. A few days later, a Morgan Stanley analyst in the U.K. subsequently published a cautionary note about Amvescap, noting that some funds raised red flags on market timing based on the data TheStreet.com received from Lipper.
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