By Jonathan Stempel

NEW YORK (Reuters) - The son of prominent investor Mario Gabelli has won the dismissal of large parts of a U.S. Securities and Exchange Commission lawsuit alleging securities fraud related to market timing.

U.S. District Judge Deborah Batts dismissed the SEC's claims alleging fraud, and seeking an injunction and civil penalties against Marc Gabelli, a former portfolio manager at Gabelli Funds LLC, and Bruce Alpert, a chief operating officer for the funds.

But she declined to dismiss SEC claims that the men aided and abetted improper trading, or the regulator's effort to recover alleged improper profits in her ruling on Wednesday.

In its lawsuit, the SEC alleged that from 1999 to 2002, Marc Gabelli let Folkes Asset Management, a British firm later renamed Headstart Advisers, conduct hundreds of market-timing trades in the Gabelli Global Growth Fund, a privilege not enjoyed by other investors.

According to the SEC, the three Headstart accounts used for market timing generated internal rates of return of 73 percent to 185 percent, while the rate of return for other shareholders was at most negative 24.1 percent.

The lawsuit was filed in April 2008, when Gabelli Funds agreed to pay $16 million to settle related SEC charges.

SEC spokesman Kevin Callahan said the regulator is reviewing Batts' decision.

Lewis Liman, a partner at Cleary Gottlieb Steen & Hamilton LLP who represents Marc Gabelli, had no immediate comment.

Edward McDonald, a Dechert LLP partner representing Alpert, said: "We are evaluating our next step, and are seriously considering asking the SEC to act in the interest of justice and common sense, and not proceed on the remaining charges."

Market timing involves rapid trading to exploit market or pricing inefficiencies. It is not necessarily illegal, but is a privilege not accorded to ordinary mutual fund investors.

DELAY

In her 30-page ruling, Batts found the SEC waited too long -- more than five years -- to seek civil penalties and file its claims that the defendants schemed to defraud.

She also said the SEC failed to allege a "reasonable likelihood" that the defendants would engage in future violations.

Batts concluded, though, that the SEC adequately alleged that Marc Gabelli entered into the market-timing arrangement and knew such trading was taking place, while Alpert provided "substantial assistance" that allowed the trading to go on.

She also said the SEC could seek disgorgement of improper profits to prevent the defendants from enriching themselves, though Gabelli Funds had already disgorged its own profits.

Mario Gabelli is chief executive of Gamco Investors Inc, a Rye, New York-based firm with about $26.3 billion of assets under management. He is worth about $1 billion, Forbes magazine said this month.

The case is SEC v. Gabelli et al, U.S. District Court, Southern District of New York, No. 08-03868.

(Reporting by Jonathan Stempel, editing by Leslie Gevirtz)