CORPORATE CRIME REPORTER
Pax
World Socially Responsible Fund Not So Legally Responsible
22 Corporate Crime Reporter 31, July 30, 2008
Pax World Management Corp. told its investors that it ran a socially responsible
investor fund.
That it would not invest in companies that derived revenue from alcohol or gambling, or from military contracts, or that violated environmental standards.
But today, the Securities and Exchange Commission (SEC) said that while Pax World said it wouldn’t, it in fact did.
The SEC said that Pax World, the SEC-registered investment adviser to several socially responsible mutual funds, including the Pax World Growth Fund and Pax World High Yield Fund, purchased at least ten securities that the Funds' socially responsible investing (SRI) restrictions prohibited them from buying – contrary to representations it made to investors and the boards of the Funds.
Pax World settled the SEC's charges and was ordered to pay a penalty of $500,000.
Pax World was represented before the SEC by William Paine of WilmerHale in Boston.
“Advisers simply cannot tell investors they are going to do one thing with their funds and then not follow through on those promises,” said SEC enforcement chief Linda Chatman Thomsen. “This is particularly true with socially responsible mutual funds because their stated investment restrictions are likely the primary reason an investor chooses to invest in these funds in the first place.”
David Bergers, director of the SEC’s Boston office, said this was the first such case in recent years the SEC has brought against a socially responsible investment fund.
One of Bergers’ examination teams was inspecting the fund and came across the information.
“Mutual fund companies marketing socially responsible funds should take care that their representations to investors match their investments,” Bergers said. “Like all investment advisers, advisers to socially responsible funds must have adequate procedures and internal controls to ensure compliance with the funds' stated investment restrictions.”
The
SEC alleged that Pax World violated the Funds' SRI restrictions by making purchases
in the securities of companies that derived revenue from the manufacture of
alcohol or gambling products, derived more than five percent of their revenue
from contracts with the Department of Defense, or failed to satisfy the Funds'
environmental or labor standards.
Pax World Funds held at least one security that violated their SRI restrictions
at all times from 2001 through early 2006.
In 2003, Pax World purchased for the Growth Fund securities issued by an oil and gas exploration company that had failed its three most recent screens.
In 2004, Pax World purchased for the High Yield Fund securities issued by a conglomerate primarily engaged in the shipping industry but which derived revenue from gambling and the manufacture of liquor.
The SEC also alleged that Pax World failed to consistently follow its own internal SRI-related policies and procedures that required that all new securities be screened by Pax World's Social Research Department prior to purchase to ensure compliance with the funds' SRI disclosures.
Pax World failed to screen eight percent of all new security purchases from 2001 to 2005.
Pax
World agreed to be censured and to cease and desist from any further violations
of certain antifraud, false filing, and other provisions of the securities laws
in addition to paying the $500,000 penalty.
Corporate
Crime Reporter
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