Pilgrim Baxter Case History
March 22, 2004
The SEC charged Gary Pilgrim and Harold Baxter, as well as Pilgrim Baxter & Associates, with "fraud and breach of fiduciary duty" in connection with a market-timing scheme at the PBHG funds, back in mid-November. Pilgrim, then-president, investment chief, and director of Pilgrim Baxter, as well as the president of the PBHG funds, and Harold Baxter, CEO and chairman of the firm and chairman and trustee of the PBHG funds, resigned the day of the charges.
Pilgrim is accused of having an undisclosed "substantial interest" in hedge fund Appalachian Trails, which was allowed to time several PBHG funds, including one Pilgrim personally managed. Appalachian's arrangement was not disclosed.
Not to be outdone, Harold Baxter is facing insider trading-like issues. He is accused of providing non-public mutual fund portfolio information to the president of broker/dealer, Wall Street Discount Corp., who was a friend. The information was then passed on to Wall Street Discount customers, who used the info to market time PBHG funds and implement hedging strategies.
The damage done by the duo's actions was not insignificant. Market-timing assets in the Pilgrim Baxter mutual funds peaked at $600 million, regulators said. Others have estimated that investors lost approximately $750 million due to timing activity since the end of 1996.
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