Dec. 18, 2003 — Alliance Cap Mgmt Holding L.P. (AC) said it would cut mutual fund management fees as part of a settlement with federal and New York State securities regulators over improper trading in the funds.
The company also agreed to a $250 million fine under the settlement with New York attorney general Eliot Spitzer and the Securities and Exchange Commission. The money will be used to set up a fund to compensate shareholders harmed by market-timing trades in the funds. The fine consists of $150 million in return of profits and a $100 million penalty.
Alliance will reduce fees on its open-end stock and bond funds by an average of 20% for at least five years, starting in January. The reduction translates into $70 million per year, Spitzer said.
Alliance said it expects to take a $140 million pre-tax charge in the fourth quarter in connection with the restitution fund. The company expects the fee reduction to lower earnings by an estimated $0.20 per share in 2004.
Alliance said it does not expect to pay a dividend in the fourth quarter this year because of charges connected with the settlement and other costs stemming from its in-house investigation into trading of the funds. The company expects to resume making distributions in the first quarter of next year.
As part of the settlement, Alliance, a unit of French insurer AXA, also agreed to establish a committee led by its chief compliance officer to review internal compliance procedures. In addition, Alliance will hire an independent consultant to review its compliance policies and other policies.
Joint investigations by Spitzer and the SEC revealed that senior executives at Alliance authorized market-timing arrangements with 18 brokers and hedge funds in return for assets that generated management fees. The trading arrangements were carried out despite prospectus language discouraging this trading.
Alliance has fired several employees in connection with suspected trading of its mutual funds.