Ex-execs committed securities fraud by allowing a hedge fund to profit by quickly trading shares, the SEC alleges.
The Securities and Exchange Commission filed suit against two officials of Gabelli Funds LLC yesterday, claiming the money manager committed securities fraud by allowing a British hedge fund to profit by quickly trading shares on a mutual fund it managed.
The suit, filed in U.S. District Court in Manhattan, claims that former Gabelli Funds portfolio manager Marc Gabelli and chief operating officer Bruce Alpert allowed the hedge fund Folkes Asset Management to profit from rapidly trading shares of the Gabelli Global Growth Fund.
Gabelli Funds, an asset management arm of Gamco Investors Inc., both of Rye, N.Y., has already agreed to pay $16 million to shareholders to related SEC charges.
But in the suit filed yesterday, the agency also sought civil penalties against the company along with forcing it to give up profits earned from its quick-trading practices from 1999-2002.
The market timing allowed London-based Folkes (now known as Headstart Advisers Ltd.) to profit from inefficiencies in the mutual fund price and in return the hedge fund agreed to invest in a hedge fund that Gabelli managed, according to SEC officials.
Mr. Gabelli's attorney, Lewis Liman, denied any wrong doing by his client.
"We are puzzled by this action by the SEC and we will respond to it forcefully in court," he said in a statement.
Folkes proceeded to earn returns as high as 185% over two years compared to -24% achieved by other Gabelli Global Growth shareholders, SEC officials said.
Marc Gabelli is the son of Gamco founder and star investment adviser Mario Gabelli.