June 21, 2004 — Pilgrim Baxter & Associates has agreed to a $100 million settlement in a case involving improper trading of its mutual funds, the New York attorney general’s office said Monday.
The company will return $40 million to investors harmed by the trading and pay $50 million in civil penalties under the settlement, which also involves the Securities and Exchange Commission.
Pilgrim Baxter also agreed to reduce the management fees for its PBHG funds by 3.16% over a five-year period, a $10 million reduction. In addition, the firm will cooperate with New York authorities’ investigation of the company’s co-founders, Gary Pilgrim and Harold Baxter.
New York and federal securities regulators last November charged that the firm and Pilgrim and Baxter allowed certain hedge funds to market time their funds, despite policies prohibiting this. Pilgrim and Baxter have resigned from the company.
Pilgrim Baxter “has agreed to a fair settlement and promised continuing cooperation in the investigation of misconduct by its founders,” Attorney General Eliot Spitzer said in a statement. “This agreement helps investors who were harmed by improper conduct, and allows the company to begin the process of restoring its integrity.”
As part of the settlement, Pilgrim Baxter has also agreed to take steps improve the governance of its funds, including making the funds and their investment adviser more accountable, Spitzer said. In addition, the firm has made a commitment to hire a “senior officer” to ensure that the funds’ fees “are negotiated at arm’s length and are reasonable,” Spitzer said.
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