“Mutual-fund company Alliance Capital Management Holdings LP, seeking to settle allegations of fund-trading improprieties, is nearing an agreement with the New York attorney general that would reduce fees for fund investors and a pact with federal regulators to pay a $250 million fine, the largest ever levied against a mutual-fund company,” writes Tome Lauricella in today’s Wall Street Journal.

“The settlement, which could set precedents for agreements with other mutual-fund companies, would allow New York attorney general Eliot Spitzer and the Securities and Exchange Commission to both claim to have driven a hard bargain even as they have pursued different strategies.”

“A final agreement, which also would include structural reorganization in the way the funds are run, could be announced early this week, according to people familiar with the negotiations. A spokesman for Alliance declined to comment.”

“Assuming the deal is finalized, it would mark the first settlement of charges against a mutual-fund company for Mr. Spitzer’s office since the investigation into improper fund-share trading began over the summer. His ability to gain a settlement agreement that involves fee concessions will likely have a ripple effect throughout the fund industry as he attempts to use the deal with Alliance as a template for future settlements with mutual-fund companies.”

“With some of the country’s largest fund companies facing charges, the agreement could have significant reverberations if those companies are forced to accept similar settlements. Officials in Mr. Spitzer’s office stress that all settlements won’t result in up-front fee reductions, in large part because different firms have different levels of exposure to alleged wrongdoing and may not feel the need to agree to such a concession.”

“But even at fund companies not under regulatory scrutiny, observers say Mr. Spitzer’s action may strengthen the ability of mutual fund boards to question the level of management fees that shareholders pay fund companies to oversee their investments. Some speculate it may even aid the SEC’s scrutiny of fund fees.”

“‘This would be a watershed event,’ says Tim Schlindwein, a former mutual-fund company executive who now runs an investment advisory firm in Chicago.”

“The case against Alliance revolves around allegations that the firm allowed a kind of short-term rapid trading known as market-timing, despite rules discouraging such trading. SEC officials are sticking to their contention that it isn’t appropriate for the agency to demand fee reductions in its settlement because none of the allegations against the firm, which is one of the largest publicly traded money managers, is known to be directly related to fees.”