U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

SEC Charges Mutual Fund Manager for Violating Socially Responsible Investing Restrictions


Washington, D.C., July 30, 2008 — The Securities and Exchange Commission today charged New Hampshire-based Pax World Management Corp. with violating investment restrictions in socially responsible mutual funds that investors were told would not contain securities issued by companies involved with producing weapons, alcohol, tobacco or gambling products.

The SEC alleges 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 10 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 agreed to settle the SEC's charges and was ordered to pay a penalty of $500,000.

"Advisers simply cannot tell investors they are going to do one thing with their funds and then not follow through on those promises," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "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 Regional Office, added, "Mutual fund companies marketing socially responsible funds should take care that their representations to investors match their investments. 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."

According to the SEC's order, 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 5 percent of their revenue from contracts with the U.S. 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. For example:

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 8 percent of all new security purchases from 2001 to 2005.

Without admitting or denying the findings in the SEC's Order, 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. The Commission's settlement takes into account the remedial acts undertaken by Pax World as well as its cooperation.

The SEC acknowledges the assistance of the New Hampshire Bureau of Securities Regulation.

# # #

For more information, contact:

David P. Bergers
Regional Director, SEC's Boston Regional Office
(617) 573-8927



Modified: 07/30/2008