The SEC said today that it will distribute $125 million to more than 254,000 investors who were harmed by trading abuses in the PBHG Funds. The move is the first in a series of three disbursements from the Fair Fund coffers that will pay out $267 million to over 384,000 affected PBHG Funds shareholders. The payment comes about three-and-a-half years after Spitzer blew the whistle—indicating just how difficult it was to determine who was defrauded out of how much. (Click here for details.)
Under a provision of the Sarbanes-Oxley Act of 2002, the Fair Fund was established to boost the amount of money returned to harmed investors by allowing fines paid by wrongdoers to be included in the distributions. The SEC anticipates that the second and third distributions from the Fair Fund to PBHG Funds’ accountholders will occur before Sept. 30, 2007.
“Of the commission’s many responsibilities under the federal securities laws, one of the most important and, indeed, most gratifying is providing tangible relief to injured investors,” said Linda Chatman Thomsen, director of the SEC’s division of enforcement. “Today’s distribution is a significant milestone in remedying harm that investors in the PBHG Funds suffered.”
In June 2004, Pilgrim Baxter & Associates, the advisor to the PBHG Funds, agreed to a $100 million settlement with regulators for engaging in abusive trading practices.
Its founders, Gary Pilgrim and Harold Baxter, paid $60 million in disgorgement and $20 million in civil penalties. The SEC charged Baxter and Pilgrim with permitting more than two-dozen accountholders to market time in funds that disclosed a limitation of four exchanges per year.
Even after terminating market timing for most investors in the middle of 2001, Baxter and Pilgrim allowed certain personal acquaintances to market time through the end of the year. During this entire period, from 1998 through 2001, the company earned significant investment advisory fees.
