Pilgrim Baxter agree to settlement in improper trading case; will pay $50 million penalty

Monday, June 21st 2004, 12:52 pm

By: News On 6

NEW YORK (AP) _ The mutual fund company Pilgrim Baxter & Associates agreed to return $40 million to some investors and pay penalties of $50 million in a settlement of improper trading allegations.

The company was 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 while officially discouraging it committed fraud.

The settlement announced Monday does not include the company's co-founders, Gary L. Pilgrim and Harold J. Baxter, who are still under investigation. Both men were charged in November by state and federal regulators 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,'' he said.

The Wayne, Pa.-based company 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 also would reduce management fees by $10 million, or 3.16 percent, over a five-year period.

Pilgrim Baxter is one of a number of securities companies across the nation to be embroiled in a scandal over mutual fund market timing that has led to criminal charges and millions of dollars in penalties industrywide.