Reverse Spin: Alger latest firm in mutual fund probe

One man’s trash is another man’s ticket to jail.

James Connelly Jr., a former vice chairman at New York money manager Fred Alger Management Inc., on Thursday pleaded guilty to evidence tampering in the mutual fund probe led by New York Attorney General Eliot L. Spitzer.

Mr. Connelly, one of three Alger employees suspended after the firm conducted its own probe into after-market trading, turned himself in upon learning that Mr. Spitzer had evidence that he had encouraged employees to get rid of e-mails and other documents related to the investigation.

Other Alger employees, as well as the firm itself, may also face criminal or civil charges as the probe deepens, according to an unnamed source familiar with the investigation.

On a related note, Mark Beeson, who headed the mutual fund business of Chicago-based Bank One Corp., resigned amid an continuing probe of his Columbus, Ohio, unit’s fund trading practices, according to published reports Wednesday.

Lightning speed

* For a guy who was just called out of retirement, John S. Reed moves fast.

Mr. Reed, wearing his hat as interim chairman of the embattled New York Stock Exchange, Thursday told Congress he hoped to have a plan within the next 10 days for reforming the Big Board. Among other considerations, the exchange is mulling the idea of assembling a board of directors made up mainly of outsiders.

Mr. Reed, a former co-CEO of New York financial titan Citigroup Inc., also told Congress he disagreed with those calling for a separation of the NYSE’s regulatory and business functions.

“In essence, they are calling for the end of self-regulation. I respectfully but strongly disagree with that view,” he said.

Meanwhile, the NYSE said Thursday it would assess fines totaling about $150 million against five of its floor trading member firms for improper trading.

News of the fines came the same week Boston-based Fidelity Investments went public with its view that the exchange should replace floor traders with computers.

“We are saying that, at this point in time, there is an opportunity for the exchange to consider improving itself, making itself more effective and to promote competition and reform the rules,” Fidelity spokeswoman Anne Crowley said.

Not so innocent?

* Oops, here we go again.

New York’s Morgan Stanley on Tuesday said the Securities and Exchange Commission is considering whether to take action over its alleged failure to adequately disclose compensation from fund companies to sell their products as well as its compensation arrangements for financial advisers.

Morgan Stanley said the SEC is also looking into whether its brokers are pushing higher-commission Class B fund shares when other, less costly share classes might be more appropriate for clients.

“There has been a battle for years between regulators and brokerage firms over to what extent fund investors should know what their brokers’ incentives are,” said Russel Kinnel, director of research at Chicago-based fund tracker Morningstar Inc.

“It may seem tough for brokers to resist pushing their in-house funds, because it can be profitable to do that.”

Separately, Morgan Stanley confirmed it had received a subpoena from Mr. Spitzer in July for information about possible late trading and market timing in mutual funds.

Last month, NASD fined the firm $2 million for running contests to motivate its brokers to sell the firm’s own mutual funds. Tickets to Britney Spears concerts were among the prizes in those contests.

Closing Quote

“The task force of a trade association automatically has no teeth.”

Matthew Fink, president of the Investment Company Institute. Page 1