Fund’s Founders Will Each Pay $80 Million

The two founders of the Pilgrim-Baxter mutual fund family have agreed to each pay $80 million to settle regulators’ charges of improper trading to benefit themselves and friends at the expense of longer-term shareholders, authorities said Wednesday.

Under the settlements with the Securities and Exchange Commission and New York Atty. Gen. Eliot Spitzer, Harold J. Baxter and Gary L. Pilgrim also will be permanently banned from the securities industry.

Baxter and Pilgrim were prominent figures in the mutual fund industry, and the penalties were the heaviest to date for a settlement by individuals in the scandal. SEC Enforcement Director Stephen Cutler called the amounts involved “virtually unprecedented for individuals in civil cases.”

Joele Frank, a spokeswoman for Baxter and Pilgrim, said the two had “made the decision to put this behind them.”

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 Gary Pilgrim -- 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 hurt other 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. It was the first time a fund company’s leadership was directly charged in connection with improper trading practices since the fund industry scandal came to light in September 2003.

The market timing yielded millions of dollars for those involved, including Gary Pilgrim, according to regulators.

Baxter, 58, and Pilgrim, 63, who founded the company in 1982, resigned a week before the regulators filed their charges. The company, which is owned by London-based Old Mutual, changed its name last month to Liberty Ridge Capital.