Report: ICI May Have Had Early Improper Trading Knowledge

March 22, 2004 ( - Mutual fund trade group officials took part in a November 2000 telephone discussion about deals involving improper trading, according to a news report.

Several officials from the Investment Company Institute (ICI) took part in the call in which a representative of Alliance Capital Management Holding, which later paid $250 million in fines and restitution to settle improper trading charges (See  Alliance, Regulators Reach Settlement ), mentioned the deals, the Wall Street Journal reported.

In addition, another fund company told the ICI in early 2001 that it tried to work out arrangements with market timers, the Journal said.

An Alliance representative on the call said if market timers violated their deal, those investors wouldn’t be allowed to make future purchases in the company’s funds, notes from the call show, the Journal reported. A spokesman for Alliance declined to comment to the Journal.

The ICI said in a  statement that all conversations were focused on restricting market timing, the Journal reported. “If the term ‘deal’ was used, it was within the context of a restriction, not an accommodation,” the ICI said.

The practices of market timing and late trading are at the center of a continuing federal/state probe of the $7.5 trillion mutual fund industry including whether some fund companies allowed certain privileged investors to engage in abusive trading while prohibiting others from doing the same thing.