WASHINGTON -- The two founders of the Pilgrim Baxter mutual fund family have agreed to pay $80 million each to settle regulators' charges of improper trading to benefit themselves and friends at the expense of longer-term shareholders, the authorities said yesterday.
Under the settlements with the Securities and Exchange Commission and the office of New York Attorney General Eliot Spitzer, Harold J. Baxter and Gary L. Pilgrim also will be permanently banned from the securities industry.
The penalties were the heaviest to date for a settlement by individuals in the scandal.
Joele Frank, a spokeswoman for Baxter and Pilgrim, said the two had "made the decision to put this behind them." She declined to comment further.
The SEC and Spitzer charged Baxter and Pilgrim and the company, Wayne, Pa.-based Pilgrim Baxter & Associates, a year ago with allowing certain favored clients and Pilgrim himself to market-time their PBHG funds, despite company policies restricting the practice. Market timing, a type of quick, in-and-out-trading, is not illegal but is barred by many funds because it tends to skim profits from long-term shareholders.
The two men and their company were accused of committing fraud on federal and state levels as well as breaching their fiduciary duty to investors. Baxter, 58, and Pilgrim, 63, who founded the company in 1982, resigned a week before regulators filed their charges.
The company, which is owned by London-based Old Mutual PLC, changed its name last month to Liberty Ridge Capital.
In their deals with regulators, Baxter and Pilgrim each agreed to pay $60 million in restitution and $20 million in civil fines. They neither admitted nor denied wrongdoing but agreed to refrain from future violations and to cooperate in ongoing investigations.
The $160 million they are paying will be combined with $90 million from the company to go to Pilgrim Baxter shareholders hurt by the trading practices.