Pilgrim Baxter Settles for $100 Million
On June 21, the SEC and New York attorney general Eliot Spitzer announced that they had settled market timing charges against Pilgrim Baxter & Associates. The SEC charged PBA with fraud under Advisers Act 206(1) and (2), insider trading under Section 204A, and added a ICA 34(b) count for making material misstatements in fund prospectuses about its exchange policies.
In its order, the SEC made a point of noting that PBA had taken several remedial steps, such as quickly hiring outside legal counsel to oversee an internal review of past trading practices in the PBHG Funds and reporting the results to the fundís board and the SEC. The SEC also noted that PBA voluntarily pledged to implement a number of reforms on its own and offered its ongoing cooperation to the SEC.
Ultimately, however, PBA agreed to pay $90 million to settle the SEC and Spitzerís charges, and, for Spitzer, agreed to a $10 million fee reduction agreement (representing a 3.16 percent reduction over a five-year period). Perhaps to ward off criticism that the penalty was too light, Ari Gabinet, District Administrator of the Philadelphia District Office, made a point of characterizing the $90 million payment as ďa large penalty for a firm of this sizeĒ in the SECís press release.
PBA agreed to a variety of compliance reforms, such as creating a code of ethics oversight committee and an internal compliance controls committee. The firm agreed to establish a corporate ombudsman for PBA employees to discuss ethical concerns. It will retain an independent consultant to review the fundís market timing controls, pricing practices, and other controls, and subject itself to an outside compliance audit every three years.
The regulatorsí suit against Gary Pilgrim and Harold Baxter remains outstanding.