Spitzer Sues Seligman Over Market Timing

New York Attorney General Eliot Spitzer yesterday sued money manager J.& W. Seligman & Co and its president, Brian T. Zino, over alleged secret market timing arrangements that he claims cost small investors $80 million.

The lawsuit, filed in New York State Supreme Court, alleges that the company allowed market timing in its Seligman Funds between 1998 and late 2003, and in some cases, encouraged the conduct.

Prior to mid-2001, the company accommodated market timers, only occasionally asking them to leave, according to the complaint. After mid-2001, the company treated market timing as a "privilege" that it limited to a few investors in which it had "special agreements," according to the lawsuit.

"Before Seligman reluctantly shut it down, the timing program cost its legitimate customers at least $80 million," the lawsuit says."These customers never knew it, though: Seligman was careful not to disclose its relationships with fund timers, and continually issued prospectuses suggesting that it was working to prevent fund timing."

The lawsuit is seeking injunctive relief, disgorgement of fees and profits, restitution and penalties. Seligman Advisors Inc., its fund distributors, and Seligman Data Corp., its shareholder services agent for the funds, also were named as defendants.

Market timing is a practice where investors move in and out of funds quickly.

Seligman accused Mr. Spitzer last September of overstepping his authority in his probe into mutual fund trading practices, filing a lawsuit in federal court in Manhattan.

Soon after, Mr. Spitzer asked a New York state judge to order Seligman to turn over records and provide testimony related to market timing.

In a press release, Mr. Spitzer said yesterday that his office had uncovered 35 previously undisclosed timing arrangements at Seligman.

The company previously disclosed that it had one arrangement that allowed frequent trading in some of its funds when it completed an internal review in 2003. The company also said it had identified three other arrangements that had been terminated and that it compensated the four affected funds.

A Seligman spokeswoman didn't immediately return a telephone call seeking comment.