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News September 12, 2005 Issue

Seligman Asks Court to Rein Spitzer In

J.W. Seligmanís had enough, and they just aren't going to take it anymore.

In a suit filed last week against New York Attorney General Eliot Spitzer, Seligman asked the Southern District of New York to formally bar Spitzerís office from investigating whether Seligmanís advisory fees are excessive. The seven-page complaint asked the court to enjoin Spitzer from subpoenaing information about Seligmanís advisory fees and using any such information in any enforcement proceeding against Seligman.

The suit was filed after negotiations of Seligmanís settlement for alleged market timing violations broke down. According to Seligmanís complaint, Spitzerís conditions for settlement "would have effectively involved turning control of the negotiation of advisory fees to an outsider, and subjecting the advisory fee negotiation process at Seligman to oversight and control by [Spitzer] in perpetuity." Seligman "candidly" told Spitzer that "it could not live with" those conditions.

According to Seligman, Spitzer turned around and threatened to launch an investigation of Seligmanís advisory fees if Seligman did not agree to Spitzerís demands. Spitzer warned that he would subpoena the fundís independent directors and bring actions against unnamed individuals at Seligman.

Spitzer seems to have made good on his threat: Attached as Exhibit A to Seligmanís complaint: a Spitzer subpoena, dated August 29, asking for seven yearsí worth of documents pertaining to board deliberations over mutual fund management fees.

Thatís when Seligman asked the court to put Spitzer on a leash. "To allow [Spitzer] to involve himself in or bring an action on this subject matter would open the door to 50 different state attorneys general doing the same thing, thus defeating the carefully conceived and comprehensive federal regulatory scheme enacted by Congress in Section 36(b) of the Investment Company Act," said Seligman. While it said that it was "respectful" of Spitzer "and the work he has done in the public interest," Seligman said it believed that Spitzer, in this instance, "has exceed his authority and intruded himself into an area assigned by Congress to the SEC."