Pax World Management Resolves Legacy SEC Claims
Statement of Joseph F. Keefe, President and CEO, Pax World Management Corp.
PORTSMOUTH, N.H. – July 30, 2008 – Pax World Management Corp. ("Pax World"), investment adviser to Pax World Funds, today entered into a Settlement Order with the Securities and Exchange Commission ("SEC"), concluding their investigation that began in December 2004, prior to my arrival as CEO. Since arriving in May 2005, I have worked diligently to address these issues and to cooperate with the SEC in its investigation.
As recounted in the Settlement Order, which Pax World can neither admit nor deny, errors occurred during the 2001 – 2005 time period that involved our Social Research Department and affected two of our funds – the Growth Fund and the High Yield Fund. Under the terms of the settlement – which involves claims of negligent conduct, not intentional wrongdoing – Pax has agreed to a cease and desist order and a civil penalty of $500,000. The Settlement Order claims that:
- 41 securities were purchased by the former portfolio managers of the Growth and High Yield Funds that either were not socially screened prior to purchase or had failed a screen. Of these, 10 securities (out of approximately 650 purchased by Pax World Funds during that time period) actually failed the social screens and therefore should never have been purchased.
- In addition, our Social Research Department made an error in applying our weapons screen to one company.
- Although the management company re-screened portfolio holdings, it did not do so continuously and did not report its social screening mistakes properly to the board of the Growth Fund and High Yield Fund.
There was no financial harm to shareholders resulting from the issues described in the SEC Order. Moreover, the Pax World Balanced Fund, which held approximately 92-97% of Pax World assets during this time period, did not purchase any unscreened securities and was not cited in the Order.
We take these issues very seriously and Pax World’s response has been vigorous. The portfolio managers of the two funds involved – the Growth Fund and the High Yield Bond Fund – as well as the head of the Social Research Department, and Pax World’s outside counsel and chief compliance officer are no longer employed by the firm.
Since my arrival in 2005, Pax World has also implemented a top-to-bottom reorganization and modernization of its business operations. This has included an overhaul of management and compliance functions, new policies, procedures and controls, plus significant new investments in people and technology. We are confident that the steps we have taken to upgrade Pax World management, personnel and compliance controls will help us assure that mistakes of this nature are not made in the future. In fact, the Chair of the Board of Pax World Funds, in a letter to shareholders available on the Pax World web site (www.paxworld.com), has stated that these improvements “have resulted in significant benefits to the Funds’ shareholders.” I would also note that the SEC cited Pax World’s substantial remediation efforts in its Order.
Today, we are a company that is moving forward, and that is focused on the future. Over the past year, Pax has acquired or launched five new mutual funds – including the Pax World Value Fund, Small Cap Fund, International Fund, Global Green Fund and Women’s Equity Fund – and has hired new portfolio managers, analysts and a UK-based sub-advisor to help manage these new funds. We are now a better, stronger company – one that is busy launching new funds, hiring new personnel, providing better service to our shareholders, and leading the next generation of sustainable investing.
We regret and take full responsibility for what occurred during the 2001 – 2005 time period. We are also proud of the progress we have made and we are committed to meeting the highest standards going forward. We are pleased to report that these regulatory issues have been resolved.