The U.S. Court of Appeals for the Second Circuit has sided with the Securities and Exchange Commission by reinstating securities fraud claims against Marc Gabelli, son of Mario Gabelli, the billionaire money manager. In an opinion Monday by Southern District Judge Jed S. Rakoff, sitting by designation, the circuit reversed an August 2010 ruling that dismissed most of the SEC’s case against Marc Gabelli, the former portfolio manager of the Gabelli Global Growth Fund, and Bruce Alpert, the chief operating officer of the fund’s adviser, Gabelli Funds.
The claims arose from the “market timing” scandal of 2003. Also known as “scalping,” market timing is a form of short term trading that can harm long-term investors by raising a fund’s transaction costs, and by creating unwanted taxable capital gains. The SEC alleged that Messrs. Gabelli and Alpert mislead investors by assuring them in a 2003 memorandum that “scalpers have been identified and restricted or banned,” when really it secretly permitted one investor to continue the practice in exchange for an investment in a hedge fund managed by Mr. Gabelli.
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