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Socially Responsible Funds Were Not; SEC Imposes Fine

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The Associated Press

Published: July 31, 2008

BOSTON - Pax World Management Corp. has agreed to pay a $500,000 fine because it failed to follow its own socially responsible investing criteria over a five-year period, when two of its mutual funds invested in off-limits industries such as gambling and liquor, and oil and gas exploration.

Portsmouth, N.H.-based Pax, a pioneer in the growing socially responsible investing niche, agreed to pay the penalty to resolve civil charges announced Wednesday by the Securities and Exchange Commission.

David Bergers, head of the SEC's Boston office, said it apparently was the first case the agency has brought alleging violations by a mutual fund firm that purports to use social as well as financial screening criteria in making investments.

After the failures at Pax, the socially responsible investment industry - estimated to hold more than $2.7 trillion in investor assets last year, according to the Social Investment Forum - could come under closer scrutiny.
Bergers declined to say whether the SEC would specifically look into the industry, but said, "As a matter of routine practice, whenever we identify a risk area, we incorporate it into our oversight of firms."
Bergers said Pax's violations came to light as a result of a routine SEC examination.

Pax, which says it serves more than 100,000 investors, said in a statement Wednesday that it "has worked diligently" to address issues raised by an SEC investigation begun in December 2004, and has adopted stronger compliance as part of a broader reorganization since Joseph Keefe became president and chief executive in May 2005.

"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," Keefe said in a statement.

The SEC found Pax violated its own restrictions after its Pax World Growth Fund and Pax World High Yield Fund - two of eight funds Pax now advises, after having launched five new funds over the past year - purchased at least 10 securities that screening criteria prohibited. Continuously from 2001 through early 2006, the two funds held at least one security that violated criteria, the SEC said.

The SEC found Pax failed to screen 8 percent of its new security purchases from 2001 to 2005.

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