Alliance Capital Faces Legal Action

Alliance Capital Management Holding, the biggest publicly traded U.S. money manager, is facing mounting legal claims as shareholders file lawsuits and regulators examine possible improper mutual fund trading at the company.

A class-action complaint filed by lawyers at the Pennsylvania law firm Schiffrin & Barroway alleged that Alliance caused financial injury by engaging in illegal trading with hedge fund Canary Capital Partners. In addition, the Securities and Exchange Commission reportedly is expected to take action against the company.

Alliance Chief Executive Lewis Sanders said Oct. 30 that the New York-based company had not “uncovered any new findings” since it suspended money manager Gerald Malone and a hedge fund marketing executive Sept. 30 for conflicts in short-term trading of mutual fund shares. Alliance has said it would “vigorously defend” itself against lawsuits.

New York Atty. Gen. Eliot Spitzer is spearheading a probe of special trading privileges given to hedge funds by mutual fund companies. The investigation by Spitzer and the SEC has broadened to include a review of trading practices at scores of fund companies.

The New York Times reported Wednesday that Alliance had received a so-called Wells notice from the SEC, alerting the company that action might be taken against it. The report cited unidentified people who have been briefed on the investigation. The firm was unavailable for comment.

Alliance, which oversees about $440 billion for investors, would be the second mutual fund company charged by regulators. On Oct. 28, Putnam Investments of Boston and two former money managers were charged with improper fund trading.

Shares of Alliance fell $3 to $31.10 in New York Stock Exchange trading.