SC Holds On To AllianceBernstein

December 16, 2003 (PLANSPONSOR.com) - Another state has decided to not throw in the towel on its pension asset management relationship with AllianceBernstein.

Investment officials for South Carolina have decided to retain the investment firm as manager for a $715.9-million large cap growth fund for the state, and a $489-million large cap value fund.   The decision comes despite allegations against Alliance Capital Management in the widening mutual-fund probe, according to a Dow Jones report.

South Carolina officials were apparently undeterred by the allegations surrounding the firm, instead focusing on the returns of both portfolios AllianceBernstein manages for the state.   According to Michael Sponhour , a spokesman for the Control Board, which is the trustee of the state’s $21-billion pension plan, both portfolios are up about 20% for the year.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

In addition, an investment panel appointed by the South Carolina Budget and Control Board met with executives for the firm last week, and came away confident in their relationship with AllianceBernstein.   “Alliance spent a long time with us discussing the firm’s situation and changes they’ve made in response to these allegations,” Sponhour told Dow Jones. “The investment panel didn’t feel this was the time to recommend making a change.”

The move by South Carolina mirrors a move by North Carolina last week.   Investment officials in the Tar Heel state determined that Alliance Capital Management has “properly managed and monitored” the state’s assets in an initial review undertaken after regulators charged the firm in a widening mutual-fund probe (See  Alliance Passes First Tar Heel State Review ).

Other states also are reviewing their business relationships with Alliance as a result of the probe. Oregon investment officials will meet with Alliance Chief Executive Lewis Sanders this week to discuss the fund probe and issues related to it, according to Ronald Schmitz, director of investments for the Oregon State Treasury.   Oregon put Alliance on a watch list last month because of the probe, Schmitz said. The firm manages about $3.3 billion for the state’s $40 billion retirement system.

And the Indiana State Teachers’ Retirement Fund has intensified its monitoring of the firm, according to Bob Newland, chief investment officer of the fund.Alliance manages a $1.5 billion fixed-income portfolio and a $400 million international equity index for the Indiana teachers fund. Indiana recently fired Putnam Investments, a Boston firm that managed about $60 million for the teachers’ fund. Putnam has also been implicated in the mutual-fund probe.

Fremont to pay $4M in Market Timing Settlement

November 4, 2004 (PLANSPONSOR.com) - Fremont Investment Advisors (FIA) has settled state and federal fund market timing and late trading allegations as part of a $4.14-million pact, regulators announced Thursday.

New York state Attorney General Eliot Spitzer  said Fremont has agreed to pay $2.14 million in restitution and disgorgement to injured investors and $2 million in civil penalties. The company, located in San Francisco, advises 12 mutual funds with approximately $3 billion in assets under management as of March 31, 2004. The deal was hammered out with the Securities and Exchange Commission (SEC).

Spitzer said he found out about the market timing activity within the Fremont Funds during his investigation of Canary Capital Partners in the summer of 2003 as the sweeping federal/state fund industry investigation was getting started. Spitzer alleged that from January 2001 to October 2002, Fremont allowed preferred investors to engage in improper, frequent short-term trading of shares of the Fremont Global Fund and US Micro-Cap Fund at the expense of other fund shareholders.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

One of the agreements required a quid pro quo: in order to receive permission to time the U.S. Micro-Cap Fund, the timer had to make an investment of “sticky” assets in Fremont’s New Era Value Fund, regulators alleged.

In its  announcement of the settlement, the SEC said it had charged former President and CEO Nancy Tengler and former Vice President of Institutional Sales Larry Adams for their roles in the affair. Tengler has also agreed to settle the Commission’s action, agreeing to pay $127,000 in disgorgement and penalties and to be suspended from the industry for six months.

The agreements that FIA made with timers were not disclosed to long-term investors, the officials said. At the same time that certain investors were permitted to time Fremont funds, other investors who made six or more complete exchanges in a year were informed by letter that their trading privileges were being terminated and that “Excessive and unpredictable trading hinders a fund manager’s ability to pursue the fund’s long term goals,” Spitzer charged.

In addition to the market timing, a Fremont employee allowed a brokerage firm to engage in late trading, regulators charged.

As part of the settlement, FIA has also agreed to significant corrective measures designed to create greater board and advisor accountability and to prevent further abusive trading practices, the Spitzer announcement said.

In a Web site  statement , a Fremont official said the firm had cooperated with regulators in the probe. “Fremont Investment Advisors and our employees are committed to upholding the funds’ policies to prevent market timing and late trading, and we have worked diligently and cooperatively with the SEC and the NYAG to resolve these issues,” said E. Douglas Taylor, chief executive officer of FIA.

«