In a February 19 letter to clients , Gross acknowledged that “…Canary became an investor in our funds both with and without our knowledge. The investments we knew about, clearly acknowledged as “timer” money, were made under an arrangement that did not violate the shareholder protection of our prospectuses, and which had monitoring provisions to prevent excessive trading.” Gross went on to note that, to their knowledge, “…this Canary trading was infrequent, did not come close to violating the prospectuses, and harmed no shareholders in the fund.”
Trading activities by Canary Capital Partners has been at the center of a continuing investigation of mutual funds in September by New York Attorney General Eliot Spitzer, regulators from other states, and the US Securities and Exchange Commission (SEC). Canary paid $40 million to settle charges it engaged in improper trading (See Spitzer Fund Abuse Probe Pumps out More Subpoenas ).
In the letter to clients, Gross noted, “To the best of our knowledge, PIMCO has never had any arrangements pertaining to ‘sticky funds,’ late trading/stale pricing arbitrage, or improper dissemination of fund holdings.” However, despite PIMCO’s assessment, Gross admits that “we wish we had never attracted the name Canary/Stern among our many thousands of loyal fund shareholders,” and goes on to note that “…if any investor in our funds was disadvantaged by this arrangement, then we want to give assurance we will make it up–in full.” The letter to clients was co-signed by Chief Executive Bill Thompson.
PIMCO was named in a complaint filed Monday by New Jersey officials that alleges several of the firm’s units defrauded investors by allowing Canary to improperly trade in PIMCO bond and stock funds. The trading violated fund policies and was detrimental to ordinary investors, the complaint said (see PIMCO Hit with Garden State Trading Suit ).
“…[A]llegations are different from facts,” Gross notes, while going on to state that “…our representatives will work vigorously with regulators to make all of the facts understood.” Still, he acknowledged, “In today’s environment we also cannot rule out future legal developments. We are not perfect and we are not above the law.”