CBSMarketWatch reports that the final settlement between Alliance Capital and US state and federal regulators may cost the firm as much as $600m. Alliance has been charged with secretly permitting certain clients to execute market-timing trades.
Alliance has agreed to pay $250m to settle civil charges and, in addition, cut its mutual funds fees by 20% for the next 5 years. This move is expected to cost the firm an additional $350m. Alliance will hire a special officer to oversee shareholder expenses. The firm agreed to settle the charges without denying or admitting any wrongdoing.
New York state Attorney General, Eliot Spitzer, who pushed through the settlement, said that the fact that Alliance agreed to cut future fees does not neccessarily mean that other firms will be required to do the same. He said: 'We are talking to other companies and every fact pattern is different. Alliance is an important one to lead with. Both in terms of the dollar amount and the rationale for payments, it lays out what I think a reasoned settlement should look like'.
The firm said that it expected to take a $140m pretax charge on its fourth-quarter earnings in connection with the $250m payment. These funds will eventually find their way back to fund shareholders who have been disadvantaged by the market timing practices.