SUGAR LAND, Texas (HedgeWorld.com)–Veras Investment Partners was identified as a mutual fund market timer involved with Fred Alger Management & Co. Inc. executive James P. Connelly, who was arrested, convicted and barred from the industry for his actions related to mutual fund market timing.
And given the size of the timing program at Alger, it’s probable that other hedge funds were involved, based on a statement and complaint from New York State Attorney General Eliot Spitzer and the U.S. Securities and Exchange Commission. Other hedge funds already involved with Mr. Spitzer’s broad investigation include Canary Capital Partners LLC, Secaucus, N.J., which paid a US$40 million in restitution , and Millennium Partners LP, New York, where a former trader pled guilty to violating N.Y. state law and agreed to be barred from the industry Previous HedgeWorld Story.
The complaint notes that Fred Alger’s timing program peaked this year with 12 companies timing mutual fund trades in a process that began in the mid 1990s, according to the two. Fred Alger’s US$80 million in timing capability at Fred Alger represented less than half the US$200 million peak size of the program, according to the complaint.
The names of other firms or individuals timing with Fred Alger was not immediately available from Mr. Spitzer’s office in Albany.
Fred Alger is cooperating with the two and ordered an independent review by the law firm Dorsey & Whitney, New York. Dorsey Senior Partner Zachary Carter is working with Deloitte & Touche LLP on the review, according to a Fred Alger statement.
Mr. Spitzer and the SEC said hedge fund firm Veras was a counterparty to mutual fund trading arrangements that Mr. Connelly, former vice chairman and chief mutual fund officer at Fred Alger, allegedly tried to conceal from Mr. Spitzer’s office.
Veras confirmed through its attorney, Akin Gimp Strauss Hauser & Feld LLP, New York, that both the N.Y. Attorney General and the SEC had subpoenaed the firm but declined to say anything beyond that. Veras is owned by James McBride and Kevin Larsen, who started the firm in 2001, according to a Texas regulatory filing.
Mr. Spitzer and the SEC noted in their complaint that, “beginning Sept. 3, 2003, [Mr.] Connelly began deceiving his own firm’s lawyers to prevent them from identifying and producing documents” that would answer a New York state subpoena. Mr. Connelly was trying to conceal trading arrangement with Veras, according to the statement.
The complaint notes that in February, Connelly traded a US$10 million investment in an Alger small capitalization fund from Veras for giving Veras the ability to time trades of US$50 million in that very fund. Then in July, Veras received another US$30 million in capacity in exchange for an additional US$12 million investment in the fund.
Mr. Connelly pled guilty to the crime of “Tampering with Physical Evidence,” a felony punishable by up to four years in state prison, according to the statement. He was ordered to pay a penalty of US$400,000 and was barred from the investment industry.
Mr. Spitzer and the SEC said that Fred Alger Management reported allegations of tampering late last week and has cooperated in the investigation.
Fred Alger manages more than US$10 billion.