SRI Firm Now has Blemish On Its Own Record

Socially responsible investment (SRI) managers should be above reproach, given that they are essentially in the business of marketing virtue. It appears that Pax World Management Corp. lost sight of that principle. Today the Securities and Exchange Commission announced that it had charged Pax with misleading investors by investing in some companies that did not meet Pax’s stated criteria. Without admitting or denying the SEC’s findings, Pax agreed to pay a fine of $500,000 and to “cease and desist from any further violations of certain antifraud, false filing, and other provisions of the securities laws.”

The SEC’s filing states that in the period from 2001 through 2005 Pax World Management, which advises the Pax World Funds, purchased ten securities for its Growth and High Yield Fund portfolios that should have been excluded. These included:

– three that violated restrictions on companies deriving revenue from gambling or alcohol;

– three that violated restrictions on companies deriving more than 5% of their revenue from the U.S. Department of Defense; and

– four that failed to satisfy criteria relating to environmental or labor practices.

It is unclear from the SEC filing whether someone at Pax deliberately added those stocks (which are not identified) to its portfolios or did so through sloppiness. The SEC also charged that until 2004 Pax did not continuously monitor fund portfolios for compliance with their SRI criteria.

Pax CEO Joseph F. Keefe put out a press release today that oddly referred to the charges as “legacy SEC claims” because they occurred “prior to my arrival as CEO,” but he stated that “we regret and take full responsibility for what occurred during the 2001-2205 time period.” He also insisted that Pax is “committed to meeting the highest standards going forward.” It is unclear, however, whether Pax can now satisfy the screens that SRI investors may themselves employ in choosing money managers.

MORE SEC NEWS: Today the SEC also announced that its commissioners had voted unanimously to propose measures that would greatly expand the amount of information readily available on municipal bonds. Under the measure, the ongoing disclosure documents filed by issuers of muni bonds would be made available for free on the web by the Municipal Securities Rulemaking Board.

As I reported earlier this year, the MSRB has already begun to make the prospectus-type filings known as Official Statements available on a free site called Electronic Municipal Market Access, or EMMA. If the proposal is implemented after the public comment period, the annual financial information documents would also be available on EMMA.

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