PHILADELPHIA (AP) – The founders of Pilgrim Baxter & Associates, Gary L. Pilgrim and Harold J. Baxter, will be paid about $69 million by their fund family’s parent company, despite theirresignations in the midst of the sweeping national probe of the mutual-fund industry.
Pilgrim and Baxter’s resignations earlier in the week came because “their personal interests and investors’ interests were in conflict,” said Jim Sutcliffe, chief executive of Old Mutual P.L.C., the parent company.
Pilgrim Baxter & Associates had said in a letter to shareholders Thursday that founder Pilgrim, with the knowledge of co-founder and chief executive Baxter, privately invested in a limited partnership that made money by quickly purchasing and redeeming shares of PBHG Funds, which are managed by Pilgrim Baxter.
Regardless of the resignations, Old Mutual said it would accelerate final payments due to Pilgrim and Baxter in Old Mutual’s 2000 acquisition of Pilgrim Baxter’s former parent company, United Asset Management.
The two were owed $69.3 million as the final installments of a $395 million deal, Old Mutual said.
“Our legal advice has been that this was simply a deferred payment” that couldn’t be canceled short of misrepresentation, Sutcliffe said in a conference call with analysts Friday from the firm’s London headquarters.
New York Attorney General Eliot Spitzer, who had subpoenaed Pilgrim Baxter’s records in July, said he was led to the firm in the course of his investigation of a New Jersey hedge fund.
Spitzer had announced a $40 million settlement with Canary Capital Partners on Sept. 3, and stated that mutual-fund companies routinely broke their rules, harming ordinary investors, to win business from Canary.
Pilgrim Baxter and Canary had “a trading relationship,” Spitzer spokesman Marc Violette said.
Sutcliffe said Pilgrim was a passive investor in a hedge fund that he identified as “Appalachian” that made short-term bets from March 2000 to December 2001 on the stock market using PBHG funds. Pilgrim managed the flagship PBHG Growth fund.
“There was nothing we determined that was illegal,” Sutcliffe said. He said the trading “was not in contradiction to the funds’ rules.”
The PBHG name may disappear regardless. Sutcliffe said the U.S. management of Old Mutual, a major investment manager in Britain and insurance power in South Africa, had decided before the resignations “that we would be relaunching PBHG funds under the Old Mutual brand.”
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On the Net:
Pilgrim Baxter & Associates: http://www.pbhgfunds.com
