Without admitting or denying wrongdoing, Alliance Capital Management LP agreed to a record-setting $600 million cooperative settlement with the Securities and Exchange Commission and New York state, both of which had brought action against the company over market-timing practices.
Alliance agreed to pay $250 million to fund shareholders who were harmed by the market-timing deals Alliance had with large investors in exchange for what is known as "sticky assets" in other Alliance products, which generated management fees for the company.
Stephen Cutler, director of the SEC's enforcement division, heralded the biggest payment ever by a mutual find adviser. He said the settlement guarantees "full compensation to investors" harmed by Alliance's market-timing arrangements.
The SEC settlement ensures that all of the funds from the settlement, including a $100 million penalty, will go right back to the investors who were hurt by the market-timing practice, the Wall Street Journal reported.
New York Attorney General Eliot Spitzer announced a state settlement with Alliance that reduces mutual fund fees by 20 percent and holds them at that level for at least five years. Spitzer estimates this will cost Alliance $70 million a year for a total of $350 million over the five years.
The SEC didn't force Alliance to cut fees for mutual fund investors but the company will be required to take steps to keep the practices from occurring in the future.
"This settlement will fundamentally alter the way this company is run," Spitzer said in a statement. "Instead of favoring managers, the company will now focus on the interests of investors by eliminating harmful market timing and reducing fees for all shareholders."
The Journal reported that Lewis Sanders, Alliance Capital's chief executive, said the firm fully embraces the fee reductions as part of the agreement.
"Driving costs out of our mutual fund operations and passing on the resulting savings in the form of lower fees and expenses to our mutual fund shareholders is a major company priority," Sanders said.