Pax World Funds, which calls itself a socially and environmentally responsible mutual fund, has come to grief after it agreed to pay $500,000 to settle Securities and Exchange Commission charges that it violated its own investment rules.

Pax World was caught red-handed when two of its mutual funds invested in off-limits industries such as gambling and liquor, and oil and gas exploration.


More details from the SEC here. The fund was not allowed to purchase secuirities of companies that made weapons, alcohol, tobacco or gambling products.

The SEC notes:"Pax World acted contrary to these representations and violated the Funds' SRI restrictions from 2001 through 2005 when it purchased for the Pax World Growth and High Yield Funds ten securities that these Funds' SRI restrictions prohibited them from buying, including securities of companies that: (1) derived revenue from the manufacture of alcohol and/or gambling products; (2) derived more than 5% of their revenue from contracts with the U.S. Department of Defense; and (3)failed to satisfy the Funds' environmental or labor standards. During this period, Pax World also failed to consistently follow its own SRI-related policies and procedures with respect to these two funds that required that all securities be screened by Pax World's Social Research Department prior to purchase to ensure compliance with the SRI disclosures. In addition, during this period, Pax World did not consistently adhere to other SRI-related policies and procedures, including continuously monitoring fund holdings. As a result of conduct during The Period from 2001 through 2005, the Pax World Funds held at least one prohibited security at all times from 2001 through early 2006."

Dear oh dear. The settlement sent Pax World into damage control mode with president and CEO Joseph F Keefe sending a letter to shareholder telling them that the investigation began in 2004, before his arrival, and that there was no financial harm to shareholders resulting from the issues described in the SEC Order.

"The portfolio managers of the two funds involved - the Growth Fund and the High Yield Bond Fund - as well as the head of the Social Research Department, and Pax World's outside counsel and chief compliance officer are no longer employed by the firm."

Just in case anyone was wondering.