Nov. 14–Founders of Pilgrim Baxter & Associates, a unit of the Boston-based operations of Old Mutual of London, were forced to step down yesterday amid disclosures of market timing in its mutualfunds by a hedge fund in which one of them was an investor.

Pilgrim Baxter was among three new firms ensnared yesterday in the nationwide fund scandal, including FleetBoston Financial Corp. and the Boston office of Loomis Sayles & Co., which both confirmed that they have been subpoenaed by the Securities and Exchange Commission and New York’s attorney general for information about trading activity in their funds.

Fleet spokesman James Mahoney said his firm also complied with a request from the National Association of Securities Dealers about its brokerage firm, Quick & Reilly.

“It’s becoming a weekly, if not daily, revelation of wrongdoing, and who knows who’s next or who will be implicated,” said Geoff Bobroff, an industry consultant in East Greenwich, R.I. Bobroff said investors should brace for more bad news from the industry, which manages $7 billion for half of US households.

Pilgrim Baxter, which manages $7.4 billion, mostly in its PBHG Funds group, said Harold Baxter, chairman and chief executive, and Gary Pilgrim, portfolio manager, stepped down from the firm — which they formed in 1982 and built into a multibillion-dollar manager with stellar performance in the 1990s — after an internal review raised questions about trading activity in the firm’s funds.

Specifically, the firm said Pilgrim invested in a limited partnership — a hedge fund — unaffiliated with the firm that engaged in market timing in PBHG funds and that Baxter, as CEO, knew about it. The conduct breached “the highest standards of professional and ethical behavior.”

Pilgrim began investing in the hedge fund in 1995, but its investments in PBHG funds were from March 2000 to December 2001.

Spokesman Tucker Hewes confirmed that regulators requested information on the firm’s trading activity.

Other top fund executives also have resigned this month, including Lawrence J. Lasser, former chief executive of Boston-based Putnam Investments. He left the fifth-largest US fund house following an investigation into alleged improper trading by two of its money managers. Last week, Richard Strong resigned as chairman of Strong Mutual Funds after New York Attorney General Eliot Spitzer said he was investigating him for improper trading.

Late trading, which is illegal, allows investors to buy fund shares at today’s price when placing their orders after a fund’s 4 p.m.

deadline. Market timing involves repeated trading into and out of a fund to arbitrage, for example, time-zone differences in international markets. Mutual funds run afoul of regulators when they say they discourage market timing but let some investors do it.

A Loomis Sayles statement signed by chief executive Robert Blanding said an internal review of employee transactions, dating to January 2001, has, to date, found no arrangements to permit market timing or late trading.

But the $8.5 billion fund manager said it found instances involving two investors that might have caused “increased trading activity” in its $1.9 billion flagship bond fund, co-managed by star manager Dan Fuss and by Kathleen Gaffney.

One of the bond fund’s investors was “recently named in a regulatory investigation,” the company disclosed, and someone familiar with the review confirmed that this was an unnamed hedge fund. Loomis also disclosed it is complying with requests for information from the SEC and New York regulators.

Mahoney at Boston-based Fleet said it was among 88 companies the SEC in recent weeks asked in a blanket request to provide information. In a quarterly SEC filing, Fleet disclosed it is complying with subpoenas and requests for information “regarding late trading and market timing activity in mutual funds.”

Fleet, which is in the midst of a merger with Bank of America Corp., is one of the nation’s largest fund managers, with $57 billion under its Columbia Management Group.

“These subpoenas are part of a broad regulatory review of the mutual fund industry, and we’re participating with the regulators in that review,” he said. In addition to Fleet funds, Mahoney said Fleet’s Quick & Reilly brokerage unit is also responding to requests for information by the NASD.

The head of the NASD, which regulates brokers, said this week his agency is looking at a “sizable number” of brokerage firms that may have engaged in improper trading with fund companies on behalf of their clients. Regulators said brokers that sell mutual funds can also violate fund policies if they permit customers to engage in late trading or market timing.

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To see more of The Boston Globe, or to subscribe to the newspaper, go to http://www.boston.com/globe

(c) 2003, The Boston Globe. Distributed by Knight Ridder/Tribune Business News.

FBF,

Nov. 14–Founders of Pilgrim Baxter & Associates, a unit of the Boston-based operations of Old Mutual of London, were forced to step down yesterday amid disclosures of market timing in its mutualfunds by a hedge fund in which one of them was an investor.

Pilgrim Baxter was among three new firms ensnared yesterday in the nationwide fund scandal, including FleetBoston Financial Corp. and the Boston office of Loomis Sayles & Co., which both confirmed that they have been subpoenaed by the Securities and Exchange Commission and New York’s attorney general for information about trading activity in their funds.

Fleet spokesman James Mahoney said his firm also complied with a request from the National Association of Securities Dealers about its brokerage firm, Quick & Reilly.

“It’s becoming a weekly, if not daily, revelation of wrongdoing, and who knows who’s next or who will be implicated,” said Geoff Bobroff, an industry consultant in East Greenwich, R.I. Bobroff said investors should brace for more bad news from the industry, which manages $7 billion for half of US households.

Pilgrim Baxter, which manages $7.4 billion, mostly in its PBHG Funds group, said Harold Baxter, chairman and chief executive, and Gary Pilgrim, portfolio manager, stepped down from the firm — which they formed in 1982 and built into a multibillion-dollar manager with stellar performance in the 1990s — after an internal review raised questions about trading activity in the firm’s funds.

Specifically, the firm said Pilgrim invested in a limited partnership — a hedge fund — unaffiliated with the firm that engaged in market timing in PBHG funds and that Baxter, as CEO, knew about it. The conduct breached “the highest standards of professional and ethical behavior.”

Pilgrim began investing in the hedge fund in 1995, but its investments in PBHG funds were from March 2000 to December 2001.

Spokesman Tucker Hewes confirmed that regulators requested information on the firm’s trading activity.

Other top fund executives also have resigned this month, including Lawrence J. Lasser, former chief executive of Boston-based Putnam Investments. He left the fifth-largest US fund house following an investigation into alleged improper trading by two of its money managers. Last week, Richard Strong resigned as chairman of Strong Mutual Funds after New York Attorney General Eliot Spitzer said he was investigating him for improper trading.

Late trading, which is illegal, allows investors to buy fund shares at today’s price when placing their orders after a fund’s 4 p.m.

deadline. Market timing involves repeated trading into and out of a fund to arbitrage, for example, time-zone differences in international markets. Mutual funds run afoul of regulators when they say they discourage market timing but let some investors do it.

A Loomis Sayles statement signed by chief executive Robert Blanding said an internal review of employee transactions, dating to January 2001, has, to date, found no arrangements to permit market timing or late trading.

But the $8.5 billion fund manager said it found instances involving two investors that might have caused “increased trading activity” in its $1.9 billion flagship bond fund, co-managed by star manager Dan Fuss and by Kathleen Gaffney.

One of the bond fund’s investors was “recently named in a regulatory investigation,” the company disclosed, and someone familiar with the review confirmed that this was an unnamed hedge fund. Loomis also disclosed it is complying with requests for information from the SEC and New York regulators.

Mahoney at Boston-based Fleet said it was among 88 companies the SEC in recent weeks asked in a blanket request to provide information. In a quarterly SEC filing, Fleet disclosed it is complying with subpoenas and requests for information “regarding late trading and market timing activity in mutual funds.”

Fleet, which is in the midst of a merger with Bank of America Corp., is one of the nation’s largest fund managers, with $57 billion under its Columbia Management Group.

“These subpoenas are part of a broad regulatory review of the mutual fund industry, and we’re participating with the regulators in that review,” he said. In addition to Fleet funds, Mahoney said Fleet’s Quick & Reilly brokerage unit is also responding to requests for information by the NASD.

The head of the NASD, which regulates brokers, said this week his agency is looking at a “sizable number” of brokerage firms that may have engaged in improper trading with fund companies on behalf of their clients. Regulators said brokers that sell mutual funds can also violate fund policies if they permit customers to engage in late trading or market timing.

—–

To see more of The Boston Globe, or to subscribe to the newspaper, go to http://www.boston.com/globe

(c) 2003, The Boston Globe. Distributed by Knight Ridder/Tribune Business News.

FBF,