SEC sues Marc Gabelli for alleged securities fraud

The SEC also sued Bruce Alpert, the chief operating officer of Gabelli Funds LLC, a unit of Gamco Investors Inc. Marc Gabelli is the son of Mario Gabelli, one of the nation's most powerful mutual fund managers and the chief executive of Gamco.

Gabelli Funds agreed to pay $16 million to settle separate charges related to the incident, which took place from 1999 to 2002, the SEC said.

Gabelli and Alpert allowed Folkes Asset Management, based in the U.K. and now known as Headstart Advisers Ltd., to profit from quickly trading shares of Gabelli Global Growth Fund. The rapid trading allowed Headstart to profit from mutual fund price inefficiencies, the SEC said, a practice that can harm the fund's other investors.

In return, Headstart agreed to invest in a hedge fund that Gabelli managed, the agency said.

Headstart earned returns of as high as 185 percent over two years from the rapid trading, while the best return that other investors in the Gabelli Global Growth Fund could have managed over that period was a loss of 24.1 percent, the SEC said.

The suit against Gabelli and Alpert was filed Wednesday in U.S. District Court for the Southern District of New York.

Gamco said in a filing with the SEC that Gabelli Funds did not admit or deny any allegations as part of its settlement.

Gamco and its subsidiaries manage private accounts and a family of mutual funds and has $31 billion in assets under management.

Shares of GAMCO increased $3.21, or 7 percent, to $49.07 in afternoon trading.