The Securities and Exchange Commission on Wednesday said it settled charges against Pax World Management Corp. for buying shares in companies that violated the fund's socially-responsible investment mandate.

Pax, a Portsmouth, N.H. registered investment advisor that launched the first publicly-available socially-responsible mutual fund in 1971, was charged with failing to consistently follow its own internal SRI-related policies and procedures that mandates all new securities be screened to ensure compliance with the funds' SRI disclosed restrictions against investing in companies with revenue tied to gambling products or making alcohol, or which derived more than 5% of sales from contracts with the U.S. Department of Defense, or failed to satisfy the funds' environmental or labor standards. Pax World Funds held at least one security that violated their SRI restrictions at all times from 2001 through early 2006.

Pax World failed to screen 8% of all new security purchases from 2001 to 2005, the SEC said.

In a shareholder letter released today on Pax World's website, company president and CEO Joseph Keefe said that 41 securities were purchased by the former portfolio managers of the Growth and High Yield Funds that either were not socially screened prior to purchase or had failed a screen. Of these, 10 securities (out of roughly 650 purchased by Pax World Funds during that period) actually failed the social screens and shouldn't have been purchased.

For example, in 2003 the Pax World Growth Fund bought securities issued by an oil and gas exploration company that had failed its three most recent screens. And in 2004, the Pax World High Yield Fund purchased securities issued by a conglomerate focused mainly on shipping but with some revenue tied to gambling and the manufacture of liquor.

Pax World agreed to settle the SEC's charges and pay a $500,000 fine.

"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. "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."

In his statement, Keefe said that since he took over at Pax World in May 2005 the company has overhauled its management and compliance functions and instituted new policies, procedures and controls. In addition, the company cut ties with the portfolio managers at the Growth and High Yield Bond funds, along with the head of its social research department, its chief compliance officer, and its outside counsel.

Pax World manages more than $2.6 billion in assets through various share classes of its eight mutual funds, as well as managed account platforms.