Administration May 11, 2004

More Scandal Related Exits at Alliance Capital

November 17, 2003 (PLANSPONSOR.com) - Alliance Capital Management LP says it will take a $190 million third-quarter charge related to costs from an investigation of market timing in its funds - and that more employees in the mutual fund distribution unit have been, or would be, asked to resign.

Reported by

Nevin E. Adams

Two previously suspended employees — the portfolio manager of the AllianceBernstein Technology Fund and a hedge fund sales executive — have resigned at its request, Alliance said in its Friday statement. The employees, according to the Wall Street Journal, were Gerald Malone, who ran the AllianceBernstein Technology Fund and two Alliance hedge funds, and Charles Schaffran, who oversaw sales of Alliance hedge funds. Alliance, which did not name the employees, said they were suspended in September after the company “identified conflicts of interest in connection with certain market timing transactions.”

The fund manager also said that “Other employees, all in the mutual fund distribution unit, have been or will be asked to resign,” going on to note that “These employee actions relate to previously announced market timing relationships.”

Other Departures

Earlier in the month, Alliance had announced the departures of John Carifa and Michael Laughlin at the firm’s request, because of their involvement with “inappropriate” market timing including some transactions that hurt the company’s fund shareholders (see Alliance Capital Execs Forced Out by Trading Scandal ). Carifa was president, chief operating officer, and director of Alliance Capital, and chairman of the board of its mutual funds. Laughlin was chairman of Alliance Capital’s mutual fund distribution unit.

Alliance, which is majority-owned by AXA Financial (NYSE:AXA – News), the U.S. unit of French insurer AXA, said Friday that it had recorded the earnings charge to income to cover restitution, litigation, and other costs associated with the investigation.

Alliance Capital is conducting an internal investigation into market timing and has also said it could face enforcement action by U.S. securities regulators because of those transactions. The firm said more details about its internal investigation and “related matters” would be revealed in its 10-Q form filing.

Since New York Attorney General Eliot Spitzer filed a series of allegations involving several mutual fund companies on September 3 (see Spitzer Fund Abuse Probe Pumps Out More Subpoenas ), a number of mutual fund executives have been handed pink slips, including Bank One (see Bank One Fund Unit Head Departs ), Putnam (see Market Timing Leads to “Late” Departure of Putnam Fund Managers ), Strong (see Trading Probes Muscle Out Strong, Putnam Chiefs ), and Pilgrim Baxter (see Pilgrim Baxter Founders Resign ), as well as retirement plan trustee/custodian Security Trust Company (see More Heads Roll at Security Trust ).