Spitzer Turns Sights on Alliance

The pension-fund giant suspends two after an internal probe finds conflicts of interest.
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Alliance Capital

(AC) - Get Report

suspended a portfolio manager with its well-regarded AllianceBernstein Technology Fund after the company was contacted by the New York attorney general and

Securities and Exchange Commission

in their probe of mutual-fund trading practices.

The New York-based pension fund-management giant also suspended a salesman in its hedge fund division after an internal investigation identified "conflicts of interest in connection with certain market-timing transactions." Alliance said it was cooperating with the attorney general and SEC's investigation.

Alliance, which hadn't previously been mentioned in connection with Eliot Spitzer's probe into the trading relationships between mutual and hedge funds, formed a special committee of directors to run a "comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations."

Before Tuesday, Spitzer's probe had been known publicly to focus on four companies with big mutual fund segments:

Bank of America

(BAC) - Get Report

,

Bank One

(ONE) - Get Report

,

Janus

(JNS)

and

Strong

. The investigation came to light when Spitzer's office announced a $40 million settlement with hedge fund adviser

Canary Capital

.

To date, only Bank of America broker Theodore Sihpol has been charged with a crime in the investigation, which focused on mutual fund companies facilitating late trading and market timing by hedge funds.

Late trading is when a fund buyer is allowed to purchase a fund after it settles at its 4 p.m. closing price, allowing it to take advantage of subsequent changes in component prices. Market timing, a slightly less-serious offense, involves dipping in and out of mutual fund shares to exploit pricing misalignments in different asset markets.