Pilgrim Baxter & Associates has agreed to a $100 million settlement in an improper trading case and will cooperate with authorities’ investigations into the company’s co-founders, the New York attorney general’s office said Monday.
The Wayne, Pa.-based fund complex will return $40 million to injured investors and pay $50 million in civil penalties under the terms of a deal also involving the Securities and Exchange Commission.
In an agreement only involving the state of New York, Pilgrim Baxter said it would reduce management fees by 3.16 percent over a five-year-period, a $10 million reduction.
Pilgrim Baxter had been accused of allowing certain clients to market time their mutual funds, despite policies to the contrary. Market timing, a type of quick, in-and-out-trading, is not illegal but prohibited by many funds because it tends to skim profits from long-term shareholders. Regulators say funds that allowed selective market-timing committed fraud.
The settlement does not include the company’s co-founders, Gary L. Pilgrim and Harold J. Baxter, who are still under investigation. Both men were charged by state and federal regulators last November with improper trading of their funds to benefit themselves and friends at the expense of longer-term shareholders.
“PBA has agreed to a fair settlement and promised continuing cooperation in the investigation of misconduct by its founders,” New York Attorney General Eliot Spitzer said. “This agreement helps investors who were harmed by improper conduct, and allows the company to begin the process of restoring its integrity.”
This is the latest development in the scandal that rapidly spread across the fund industry that long prided an untarnished reputation. Dozens of fund companies have been subpoenaed by the SEC, the states of Massachusetts and New York and other regulators amid reports of widespread improper trading. A handful of agreed to multimillion dollar settlements to resolve accusations of wrongdoing, including Alliance Capital Management and Bank of America.