Gary Pilgrim - Market Timing

Market Timing

On November 20, 2003, both the Securities and Exchange Commission and New York Attorney General Eliot Spitzer filed charges against Gary L. Pilgrim, Harold J. Baxter, and PBA for civil securities fraud and breach of fiduciary duties. Pilgrim was accused of allowing one of his friends, Michael Christiani, the manager of a hedge fund called Appalachian Trails L.P., to use a market timing strategy which rapidly traded shares of, among other funds, the PBHG Growth Fund. Though market timing is a legal and legitimate practice still in widespread use, it had begun to be considered potentially deleterious to buy-and-hold investors. In fact, at the time charges were brought in 2003, PBA had already expelled all market timers from its funds and had allowed no such activity since December 2001. Despite media reports to the contrary, there were no accusations or evidence of the illegal late trading which factored in other cases of the 2003 mutual fund scandal.

On November 17, 2004, the S.E.C. announced a settlement which forbade Pilgrim and Baxter from publicly denying wrongdoing, and required each to personally pay US$80 million while PBA would pay US$90 million, for a total of US$250 million. In addition, both Pilgrim and Baxter were permanently forbidden from employment in an investment-advisory capacity.

Despite attempts to recover, the PBHG Funds brand was too badly damaged by the incident to remain viable. In 2004, PBA was renamed Liberty Ridge Capital by parent company Old Mutual. The PBHG Funds were absorbed into the Old Mutual Funds group, and Liberty Ridge Capital ceased operating in 2009.