NEW YORK attorney general Eliot Spitzer, who has spearheaded the inquiry into improper trading at mutual funds, is likely to take action against Old Mutual’s Pilgrim Baxter Associates early nextweek, writes Richard Thomson.
Spitzer said he may take action against the company, two departing executives and possibly other employees, but didn’t say whether the charges would be civil or criminal.
Harold Baxter and Gary Pilgrim, who founded the firm in 1982, stepped down yesterday after an internal probe found that the company, through an outside partnership, had been involved in market- timing trades in its PBHG fund and other mutual funds.
Despite their abrupt departure, Baxter and Pilgrim are entitled to around $58 million (35 million) as well as a further $11 million for their stake in the company.
Old Mutual has paid them more than $400 million since buying the company.
They are among the most senior executives in the hedge fund industry to have been forced to step down as a result of the widening investigation. Although market timing – a form of rapid trading – is not technically illegal, it damages the returns of long- term investors.
The company found that Baxter knew about the trades although he was not directly involved in them. Pilgrim Baxter had $7.4 billion in assets under management as of 30 September. Old Mutual bought the company in 2000 to expand its operations in the US.
Old Mutual is the second UK-listed group caught in the probe. Fund manager Amvescap is also thought to be under investigation.
