WASHINGTON (HedgeWorld.com)–Congratulations, Dick Strong. You’re no longer at the top of the list of mutual fund executives who’ve had to reach into their own pockets to pay fines and penalties for allowing market timing.
Number One with a bullet this week are Gary L. Pilgrim and Harold J. Baxter, co-founders of the mutual fund firm Pilgrim Baxter & Associates Ltd., Wayne, Pa. Thanks to a US$160 million settlement with the Securities and Exchange Commission and the New York State Attorney General’s office announced today, Messrs. Pilgrim and Baxter now hold the distinction of having forked over the most personal money to settle mutual fund market-timing charges.
As part of the agreement the two men will pay a total of US$80 million apiece in restitution and civil penalties for their roles in allowing outsiders to market-time mutual funds run by Pilgrim Baxter & Associates. Additionally, both men agreed as part of the settlement to lifetime bans from the securities industry. Neither man admitted to nor denied the allegations made by the SEC and New York State Attorney General Eliot Spitzer.
The penalties, combined with the US$90 million in restitution, fines and civil penalties that Pilgrim Baxter & Associates (now called Liberty Ridge Capital) agreed to as part of a separate market-timing settlement back in June, bring Pilgrim Baxter’s total shareholder restitution to US$250 million. As with previous settlements, the money from the fines and restitution will be returned to investors harmed by the market timing. In addition, Pilgrim Baxter agreed to lower its mutual fund management fees by US$10 million as part of its settlement.
Mr. Strong earlier this year agreed to pay US$60 million to settle charges he market-timed his own firm’s mutual funds. Mr. Strong also issued a personal apology as part of the settlement.
The giant personal penalties to be paid by Messrs. Pilgrim and Baxter speak to the severity of their abuse of shareholder trust, said Stephen M. Cutler, director of the SEC’s Division of Enforcement, in a statement. “The amounts being paid in this settlement are virtually unprecedented for individuals in civil cases,” Mr. Cutler said. “Along with the permanent bars, the monetary sanctions we have obtained here reflect the severity of the misconduct and the fundamental breach of duty at issue in this case.”
Added Mr. Spitzer: “As founders of a company that bore their names, Mr. Pilgrim and Mr. Baxter should have set an example of integrity and fair play. Instead they were at the center of improper conduct that deceived and harmed their clients.”
Investigations by Mr. Spitzer’s office and the SEC found that despite mutual fund prospectuses that claimed investors in PBGH funds would be allowed to make no more than four trades per year into and out of Pilgrim Baxter mutual funds, certain investors were allowed to break the rules.