Dual South Africa-listed and UK-listed financial services group Old Mutual plc (OML) has confirmed that its US asset management affiliate Pilgrim Baxter & Associates (PBA) has reached agreements with the US Securities and Exchange Commission (SEC) and the Office of the New York State attorney general. The agreement settles all charges brought by these authorities against PBA in relation to market timing in the US Mutual Fund business.
Under the terms of the agreements, announced on Monday, PBA neither admits nor denies any wrongdoing, and has accepted to pay $40-million disgorgements of past fees plus $50-million in penalties, all of which will be paid as restitution to shareholders of the PBHG Funds according to a plan to be developed by an independent consultant.
In addition, it will reduce fees to investors by approximately $10-million over the next five years.
The agreements settle charges brought against PBA in November 2003 in relation to past trading activity in the PBHG Funds permitted by the former management of the firm. New leadership appointed at PBA in November had instituted significant reforms at the firm and worked with authorities to settle the charges.
Commenting on the settlement, Jim Sutcliffe, CEO of Old Mutual plc, said: “I am pleased that PBA has now reached a settlement with the regulators and am keen to put this matter behind us. Our strategy of maintaining a diversity of separate specialist affiliates has ensured that the affair has had no material impact outside PBA, which only accounts for 3,2% of total US funds under management.
“Overall, US funds under management for the first quarter to 31 March 2004 rose by 3,9% to $160-billion. Our US Asset Management business has grown steadily and is an important part of our international growth. We can now move on and continue to develop our activities in this market.”
PBA CEO David Bullock added: “These agreements serve to protect shareholder value and reach a resolution in the best interests of the shareholders of the PBHG Funds. Together with the significant reforms we have already made to the company’s policies and practices, the provisions of these settlements bring long-term benefits to our fund shareholders. We can now focus on the future of the firm and our core mission of managing money and serving investors.”
In addition to the settlement terms, Bullock pointed out that Pilgrim Baxter, in conjunction with the Board of Trustees of the PBHG Funds, had instituted in recent months the following significant reforms, all of which provided additional protections to benefit fund shareholders:
- To deter market timers, 2% redemption fees were being applied as outlined in the prospectus effective June 1 for PBHG Funds shares sold within 10 days of purchase, with all fees paid directly into the affected funds; prospectuses for the PBHG Funds had been amended to include detailed disclosure of the firm’s stringent anti-market timing protocols and practices to combat market timing;
- An enhanced Code of Ethics governing all employees at Pilgrim Baxter had been adopted to prohibit investments by employees that could create conflicts of interest with fund shareholders, including mandatory minimum holding periods for investments in PBHG Funds;
- The capacity of Pilgrim Baxter’s legal and compliance staff had been expanded to ensure that sufficient resources are dedicated to oversight of employee investments and overall compliance monitoring;
- A new uniform policy on the disclosure of fund holdings has been adopted, with full portfolio holdings for the PBHG Funds made publicly available on the PBHG Funds website 15 days after each quarter-end; and
- An independent audit of the company’s internal controls and procedures has been conducted to ensure the adequacy of the firm’s key practices and procedures.
“We thank our shareholders and clients for their patience and support as we have worked to implement these reforms over the last six months. Pilgrim Baxter’s highest priority will remain to safeguard the interests of our investors,” said Bullock. “We welcome the opportunity to earn the confidence of investors by providing best-in-class investment offerings and outstanding service. Everyone at Pilgrim Baxter is dedicated to that task.” – I-Net Bridge