The SEC and New York State’s Attorney General Eliot Spitzer’s office have settled their cases in federal district court with Pilgrim Baxter & Co. The company has agreed to pay the SEC $40 in disgorgement and $50 million in civil penalties for allowing select clients to market time its funds. In addition, the company has agreed with Spitzer’s office to reduce management fees by 3.16% over a five-year period, a settlement valued at $10 million.

Stephen M. Cutler, director of the SEC’s division of enforcement, characterized the sum as "an important milestone for mutual fund shareholders."

"We have obtained significant monetary sanctions -- all of which will be used to reimburse investors -- as well as far-reaching compliance and governance reforms designed to prevent the sorts of abuses that gave rise to the SEC's lawsuit," Cutler said.

The size of the settlement reflects both the size of the firm and the scope and severity of trading, since "Pilgrim Baxter & Associates was an early and popular haven for some

of the best known and most active market timers," said Ari Gabinet, district administrator for the SEC’s Philadelphia District Office.

The SEC stated that, during the three-and-a-half years that Pilgrim Baxter allowed rapid trading to select clients, those clients reaped profits, to the detriment of the rest of the shareholders, Pilgrim Baxter collected advisory fees, and the value of the funds declined as a direct result of the activity.

As part of the settlement, the company has agreed to help in the cases against the firm’s founders, Harold J. Baxter and Gary L. Pilgrim.

"PBA has agreed to a fair settlement and promised continuing cooperation in the investigation of misconduct by its founders," Spitzer said. "This agreement helps investors who were harmed by improper conduct, and allows the company to begin the process of restoring its integrity."

 

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