PIMCO Confirms CA Subpoena

January 6, 2004 (PLANSPONSOR.com) - Pacific Investment Management Co. LLC (PIMCO) has revealed California Attorney General Bill Lockyer is investigating the firm for possibly defrauding investors by not disclosing compensation for mutual fund sales deals.

Newport Beach, California-based PIMCO confirmed the state’s attorney was looking into allegations of“selling shelf space” at the firm – a phrase that refers to spots on broker-dealers’ list of recommended buys which mutual funds secure by paying broker-dealers cash or commissions, a PIMCO spokesman told Reuters.   Additionally, the spokesman said the Allianz AG unit was cooperating with officials.  

PIMCO now joins San Mateo, California-based Franklin Resources Inc and Los Angeles-based Capital Group Companies as the trio of companies named in Lockyer’s probe into possible fraudulent activity surrounding “selling shelf space”.   The probe, launched just a day after a new law took effect granting the California attorney general authority to pursue violations of the state’s securities law and bring civil lawsuits for violations, initially looked into three unnamed targets (See CA Attorney General Probing Fund Sales Misdeeds ).

Lockyer characterized his probe as similar to a recent action by the US Securities and Exchange Commission (SEC), which investigated mutual funds’ sales practices by Wall Street giant Morgan Stanley. Morgan Stanley in November agreed to pay $50 million to settle federal charges for not telling investors about compensation it received for marking particular funds (See Morgan Stanley Confirms Spitzer, SEC Fund Probe Ties ).

The three fund companies are considered the probe’s “initial subjects,” but the investigation may expand to other fund companies and broker-dealer firms who sell mutual funds to consumers, the Attorney General said in a statement (See Attorney General Lockyer Launches Investigation of Fraudulent Sales Practices by Mutual Funds ).