Bloomberg News

SEC Suit Against Gabelli Reinstated by U.S. Appeals Court

August 01, 2011

(Updates with statement from Alpert’s lawyer in eighth paragraph.)

Aug. 1 (Bloomberg) -- Marc J. Gabelli, a former portfolio manager of Gabelli Global Growth Fund, must face a lawsuit brought by the U.S. Securities and Exchange Commission, a federal appeals court said, reversing a lower-court ruling.

The SEC alleged in a 2008 complaint that Gabelli, a son of founder Mario Gabelli, had authorized the fund to be market timed by Folkes Asset Management, now known as Headstart Advisers Ltd., and that Gabelli Funds LLC Chief Operating Officer Bruce Alpert had allowed it to continue.

The U.S. Court of Appeals in New York today reversed a decision by U.S. District Judge Deborah A. Batts dismissing the complaint on the grounds that the SEC waited too long to seek civil fines. Batts last year also threw out securities fraud claims against Alpert. The appeals court ruled the claim for civil penalties isn’t subject to time limitations.

“Finding at this stage in the litigation defendants have not met their burden of demonstrating that a reasonably diligent plaintiff would have discovered this fraud prior to September 2003, we conclude that the SEC’s prayer for civil penalties survives defendants’ motions to dismiss and must be reinstated,” U.S. District Judge Jed Rakoff, acting as an appeals judge in the case, said in the ruling.

Market timing is the practice of short-term buying, selling and exchanging of mutual funds to exploit pricing inefficiencies. Gabelli Funds LLC agreed to pay $16 million in April 2008 to settle market-timing claims by the SEC.

Portfolio Manager

Marc Gabelli was a portfolio manager for GGGF and its predecessor from 1997 to 2004 and stopped working for Gabelli Funds, a unit of GAMCO Investors Inc., in 2006, according to the SEC’s complaint. He has been chairman of LGL Group Inc., an Orlando, Florida-based maker of electronic components, since September 2004, according to the company’s website.

A lawyer representing Marc Gabelli, Lewis J. Liman, didn’t return a telephone message. SEC spokesman Kevin Callahan declined to comment on the ruling.

“We’re disappointed with the decision,” said Kathleen Massey, a lawyer for Alpert. “We disagree with the court’s analysis.”

Massey said she is confident Alpert will prevail when the facts are considered once the case is returned to the trial court.

The case is SEC v. Marc Gabelli, 08-cv-3868, U.S. District Court, Southern District of New York (Manhattan).

--With assistance from Joshua Gallu in Washington and Bob Van Voris in New York. Editors: Fred Strasser, Mary Romano

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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