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Gabelli Settles Insider Trading Charges In 5th graf, CORRECTS “preventive” sted

December 9, 1994

Gabelli Settles Insider Trading Charges In 5th graf, CORRECTS ″preventive″ sted ″preventative...″

WASHINGTON (AP) _ Gabelli & Co. Inc., one of Wall Street’s prominent and active investment firms, has agreed to pay a $100,000 fine to settle federal charges it violated federal insider trading laws.

Gabelli and its investment adviser affiliate, Gamco Investors Inc., on Thursday also agreed under the settlement with the Securities and Exchange Commission to a cease and desist order and appointment of an independent consultant to review the firm’s trading policies.

Gabelli, based in Rye, N.Y., didn’t admit or deny the SEC’s allegations that it failed to prevent misuse of confidential information. The firm described the SEC’s charges as a ″technical debate″ and said it settled with the SEC in order to conclude the matter.

The case is significant in that Gabelli and the investment adviser weren’t charged with insider trading, but instead with failing to have proper controls to prevent such abuses.

″The message here is the commission cares a great deal about these preventive measures,″ said Laura Singer, the SEC’s assistant director of enforcement. ″If you do not have those procedures in place, the sanctions can be steep.″

The SEC found that Gabelli and its investment adviser ″violated the law that requires them to establish and enforce″ internal rules to prevent misuse of secret corporate information.

Generally speaking, brokerage firms are supposed to establish specific policies to prevent the firm’s trading operations from learning of confidential financial information obtained from clients seeking to sell stocks or bonds. Such information can by extremely profitable by giving traders an edge in the market.

The SEC’s case centered on the dual roles of Mario J. Gabelli, the firm’s chairman and chief executive officer. He also serves as CEO of a separate publicly traded telecommunications company, Lynch Corp. of Greenwich, Conn.

The SEC said Gabelli’s policies ″did not address the special circumstances that arose from Gabelli’s dual roles″ as head of a brokerage firm and investment adviser and as an executive of a company with access to important non-public information.

The case is based on the Gabelli firms’ trading of Lynch securities in February 1992, prior to Lynch’s Feb. 27, 1992 board meeting in which it approved release of year-end 1991 earnings.

The SEC criticized Gabelli & Co. for failing to place Lynch & Co. on a list of securities to restrict trading whenever anyone at the firm possessed insider information about the company.

″Our lawyers disagree,″ said Zeidy Salas of Gabelli’s legal department.

″We had no opinion in this technical debate. We decided to stop the debate″ by settling with the SEC.

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