Pax Fined $500k in SRI Violations Case

A New Hampshire socially responsible investment (SRI) money manager has agreed to a $500,000 settlement with federal regulators in charges it improperly bought securities despite its own SRI restrictions that should have prevented their purchase.

The Securities and Exchange Commission (SEC) announced the agreement with Pax World Management Corp. of charges it purchased at least 10 securities technically barred by the SRI screens on its mutual funds. The company was accused of selecting securities issued by companies producing weapons, alcohol, tobacco, or gambling products.

According to an SEC statement, the company made the purchases for its Pax World Growth Fund and Pax World High Yield Funds. The SEC said Pax World Funds held at least one security that violated its SRI restrictions at all times from 2001 through early 2006.

SEC officials said Pax World’s SRI restrictions barred purchases in the securities of companies that derived revenue from the manufacture of alcohol or gambling products, derived more than 5% of their revenue from contracts with the U.S. Department of Defense, or failed to satisfy the funds’ environmental or labor standards.

“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, in the SEC statement. “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.”

Specific Charges

Specifically, the SEC said:

  • 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.

In a statement posted to its Web site, Pax President and CEO Joseph F. Keefe said the portfolio managers that had overseen the two funds at which the SEC found violations are no longer employed by Pax. The firm’s head of social research at the time of the failures also has left, along with the chief compliance officer, Pax said.

“We regret and take full responsibility for what occurred during the 2001 – 2005 time period,” Keefe said. “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….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.”

More information is available at