Marc Gabelli Sued by SEC for Alleged Securities Fraud

Washington, DCFormer money manager, Marc Gabelli, was sued by the SEC on Thursday April 24, 2008 in U.S District Court for the Southern District of New York for securities fraud. The SEC alleges that he allowed a hedge fund to quickly trade the shares of a mutual fund that he was managing. COO Bruce Alpert has also been sued in the case.

Gabelli Funds LLC is a Gamco Investors, Inc. unit that is operated by the son of Mario Gabelli, the CEO of Gamco. The senior Gabelli is considered to be one of the most powerful managers of mutual funds in the United States.

However, the younger Gabelli and Alpert permitted a UK company called Headstart Advistors Ltd., formerly known as Folkes Asset Management, to make profit by rapidly trading shares of the Global Growth Fund that is owned by Gabelli. This gave Headstart a doorway to profit from the inefficiencies in the mutual fund price, which causes harm to the funds belonging to other investors. In return for this allowance by Gabelli, Headstart made the agreement to invest in a hedge fund managed by Gabelli.

In the end, Headstart received returns of as much as 185% in the two years they were allowed to rapidly trade the mutual fund's shares. In the meantime, the other investors in the fund were losing approximately 24.1% of their shares, according to the SEC.

Gamco stated in an SEC filing that Gabelli Funds have neither admitted nor denied the allegations against them. The suit is seeking civil penalties, in addition to the company giving up the profits that were earned during the quick trading that took place between the years of 1999 and 2000.

The group of mutual funds that Gamco manages has a total of around $31 billion and they also manage a number of private accounts. Gabelli Funds has also already agreed to pay $16 million in relation to charges by the SEC over a matter that is related to this recent lawsuit.

By: Ginger Gillenwater