Fred Alger Management Settles Market Timing Case

Fund manager Fred Alger Management Inc., has agreed to a $45 million settlement of charges it engaged in a “massive″ market timing scheme that benefited favored investors.

New York state Attorney General Andrew Cuomo said Alger will pay $30 million in restitution and $10 million in civil penalties. The firm also agreed to reduce its fees by $5 million over five years.

Cuomo said Alger consented to adopt reforms and corrective measures including:

  • new requirements for disclosure to investors of expenses and fees,
  • new standards for board independence, greater board and adviser accountability; and
  • a commitment to hire a senior officer to ensure fees charged by the funds are negotiated at arm’s length and are reasonable.

    According to Cuomo’s statement, Alger’s prospectuses dictated a limit of six trades per year designed to prevent timing, but this was “routinely” waived for hedge funds and other big investors. For example, one timer engaged in 228 trades in 2001.

    Specifically, Alger provided two of its preferred hedge fund clients, Veras Capital Partners, L.P. and Canary Capital Partners, L.L.C., with an additional form of undisclosed special treatment by providing them material, non-public information to assist them in their trading strategies, Cuomo charged.

    In June, the company announced it would settle the charges originally brought by former Attorney General Eliot Spitzer for $41 million (See State Officials Focus on Fred Alger). The company, the state and the U.S. Securities and Exchange Commission have now agreed to the settlement.

    The company did not admit it did anything wrong. “After three and a half years, we are pleased to put this settlement behind us and move forward,” said company spokesman Jeffrey Taufield, according to an Associated Press report.