The mutual fund scandal cleaned out another executive suite on Thursday, forcing the ouster of the founders of fund manager Pilgrim Baxter & Associates.
Pilgrim said in a letter to shareholders that founders Harold Baxter and Gary Pilgrim quit because of conflicts of interest related to market timing making rapid-fire trades to take advantage of price movements. Pilgrim is the investment adviser for PBHG Funds, which had $4.7 billion in assets under management as of Sept. 30.
The firm said that Pilgrim personally invested in a limited partnership that actively traded in some PBHG funds between March 2000 and December 2001. Baxter was aware of Pilgrim’s investment and the market timing. The firm says it had no formal policy against market timing at the time of the trades but felt they were inappropriate. Pilgrim has agreed to contribute his profits from the partnership to PBHG Funds.
The announcement came as New York Attorney General Eliot Spitzer prepared to file charges related to the market timing, according to a source close to the investigation. Spitzer spokeswoman Juanita Scarlett declined to comment.
Pilgrim is known for momentum funds, which invest in stocks of companies with rapid earnings growth. The funds had a good run in the early ’90s. But as they grew, performance suffered, says Russ Kinnel, chief analyst at fund researcher Morningstar.
David Bullock, who joined Pilgrim in July as president, will succeed Baxter as CEO. He said the firm has hired an independent counsel to lead its internal review.
Also Thursday, FleetBoston Financial said in a regulatory filing that its subsidiaries have been subpoenaed by state and federal regulators investigating market-timing abuses in mutual funds. Fleet said it is cooperating.
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