Pilgrim Funds CEO Wins Cut in Penalties Over Ad Case : Ethics: NASD rebukes its Los Angeles conduct committee in scaling back suspension and fine against Palomba Weingarten.
Pilgrim Group Chief Executive Palomba Weingarten has won a sharp reduction in penalties ordered against her and her Century City-based mutual fund firm for a series of fund ads that an industry watchdog group judged misleading.
The National Assn. of Securities Dealers’ national business conduct committee, in a decision released Monday in Washington, ordered that a one-year suspension and $100,000 fine levied against Weingarten be cut to three months and $25,000.
The penalties had been assessed by the NASD’s regional business conduct committee in Los Angeles after an investigation into Pilgrim ads that ran in the Wall Street Journal in early 1993.
The regional NASD committee found that the ads contained “misleading or exaggerated statements” about the performance of some Pilgrim funds, and that Weingarten’s conduct “was intentional” in creating the ads.
But the national NASD committee, to which Weingarten appealed the regional group’s decision, said that the penalties were “unprecedented in their severity.”
“It is clear to us that in no prior case has the NASD imposed sanctions for advertising violations that were even remotely of the magnitude of those imposed in this case,” the national committee wrote in its decision.
However, the decision does not overturn the regional committee’s findings on the ads. “We share the view . . . that the ads in question were egregious, and that respondents acted recklessly (if not intentionally)” in creating the ads, the national committee said.
The Pilgrim case garnered widespread publicity because mutual fund advertising in general has come under scrutiny since 1992, and because the often brash and outspoken Weingarten has become a controversial industry figure.
Pilgrim, which manages mostly bond funds that invest in adjustable-rate mortgages, has been embroiled in a number of disputes over its funds in recent years. Most recently, the company reimbursed one of its funds for consultant fees charged to the fund but later judged inappropriate.
Weingarten, whose lawyers had argued in their appeal that the regional NASD committee had been overzealous and unfair in affixing the original penalties, said Monday that “the fact that the national committee saw fit to reduce them by 75% indicates that they also felt (the regional board) was overreaching.”
While still insisting that the ads “were not meant to be misleading,” the 51-year-old Weingarten said she will not appeal the case further. “I will go forward with my business,” she said.
Her suspension affects only her association with Pilgrim’s funds distribution arm, not her position as CEO of the parent company. In August, Weingarten stepped down as CEO of the distribution unit, naming James Ash to succeed her.
Weingarten now must take a standard NASD written test to requalify as a securities “principal.”
Lani M. Sen Woltmann, the NASD district director in Los Angeles, said that while regional NASD committees are supposed to follow national guidelines in setting penalties, “They’re permitted to go up or down” from the guidelines depending on the case.
But the national NASD committee, in its rebuke, said the $100,000 fine originally ordered against Weingarten was “four times the maximum” in the guidelines and “cannot be justified.”
Meanwhile, the latest blaze of bad publicity surrounding Pilgrim and Weingarten may be taking its toll. The firm, which relies on brokers to sell its funds, had $2.5 billion in assets in late July, but now says the total is $2.2 billion.
Although some fund analysts believe Pilgrim is too small to compete effectively in the industry, Weingarten said Monday: “I’ve been hearing that for 10 years.”
