Wednesday, 23 July 2014
Last updated 9 min ago
Sep 27 2012 | 12:18pm ET
More than a decade after Gabelli Funds allegedly allowed a hedge fund to improperly market-time one of its mutual funds, the U.S. Supreme Court will decide whether the firm or its executives can be held to account for it.
The high court on Tuesday granted certiorari to Marc Gabelli and Bruce Alpert, chief operating officer at Gabelli Funds, in their appeal of a lower-court decision allowing the Securities and Exchange Commission to sue them. Gabelli claims that the SEC's lawsuit, filed in April 2008, came after the statute of limitations expired.
The SEC has a five-year statute of limitation in cases in which it seeks financial penalties. In the Gabelli case, its suit came six years after the last allegedly illicit market-timing trade took place, in August 2002. But the Second Circuit Court of Appeals ruled that the SEC could not have uncovered the scam before September 2003, when then-New York Attorney General Eliot Spitzer began his campaign against mutual-fund market-timing, and that therefore the suit could move forward.
Gabelli Funds settled the allegations for $16 million, but Marc Gabelli and Alpert decided to fight the charges.
According to the SEC, Marc Gabelli and Alpert gave Folkes Asset Management—now known as Headstart Advisers—the OK to market-time the Gabelli Global Growth Fund without disclosing it to either the fund's board or its investors, and while denying requests to market-time from other investors. Indeed, the SEC alleges, Alpert told the board that the firm was taking action to prevent market-timing, which is not illegal.
In exchange, Folkes allegedly agreed to invest in a Gabelli-managed hedge fund.
Folkes, which made some $4.2 billion worth of trades in the Gabelli fund from 1998 through 2002, settled the SEC's charges against it in 2009 for $17 million.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…