The Pax World funds, which pioneered the concept of "socially responsible investing," has admitted that market timing occurred at one of its mutual funds, the Chicago Tribune reports.
In a recent letter to shareholders, CEO Laurence Shadek and President Thomas Grant said that a SEC review determined that Pax World failed to prevent some investors from engaging in market timing in its High-Yield Fund in 2003.
Grant told The Tribune that, unlike other market-timing cases, Pax World did not actively encourage market timing in return for significant, long-term investments from the market timers. He and Shadek both said in the letter that the activity did not burden investors with significant costs.
Still, the admission is a big blow for a company that prides itself on being an ethical fund.
The Pax World letter said "the difficulty in discovering and stopping this form of activity resulted from a combination of our outside vendors' systems limitations and a failure on our part to promptly recognize the significance of what was occurring." The company announced that it had taken several steps to prevent a recurrence.
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