PIMCO Excessive Compensation Lawsuit Dropped

PIMCO has requested that a number of documents remain sealed and not be open to the public by the court.

A lawsuit claiming the excessive compensation received by PIMCO officers through the PIMCO Total Return Fund was so disproportionately large that investment returns suffered has been dismissed, with the withdrawal of all pending motions.

The lawsuit called into question compensation paid to former co-chief investment officers and co-chief executive officers Mohamed El-Erian and William H. Gross, among others. Gross is PIMCO’s founder and started the PIMCO Total Return Fund in May 1987.

The complaint noted that the fund was, until recently, the largest mutual fund in the world. At the close of the fiscal year 2013 (i.e. March 31, 2014), the PIMCO Total Return Fund held more than $230 billion in assets under management. However, according to the complaint, as the increase in assets in the fund led to larger and larger amounts of compensation being paid to the PIMCO, the fund’s performance suffered.

The complaint argued that the fund’s poor performance shook up management at PIMCO. In early 2014, El-Erian announced his departure after purportedly butting heads with Gross over management of the fund. Gross also left the firm, in September 2014, joining competitor Janus Capital Group. News of both El-Erian’s and Gross’s departures compounded the poor results of the fund and led to billions of dollars in redemptions, the complaint said.

The complaint charted the fees charged by PIMCO for both institutional and retail class shares and accused PIMCO of raising fees over the years and not using the fund’s economy of scale to lower fees.

Request to leave certain documents sealed

In addition to the parties agreeing to withdraw from the court’s consideration their pending cross-motions for summary judgment and all briefing, declarations, exhibits, and supporting materials offered in support of their motions, PIMCO has requested that a number of documents remain sealed and not be open to the public by the court.

Those documents include employee performance self-evaluations for three of PIMCO’s most senior executives, Brent Harris (chairman of the PIMCO Funds), Douglas Hodge (former CEO), and Peter Strelow (co-chief operating officer); information about compensation paid to PIMCO managing directors and portfolio managers; documents that reflect sensitive business strategy discussions among PIMCO’s most senior executives; documents implicating the confidentiality interests of PIMCO clients who have no role in the current action; and documents reflecting the deliberative process of the Board; among many others. PIMCO says these documents qualify for protection because of the risk of competitive harm from disclosure.

Chief U.S. District Judge Ricardo S. Martinez of the U.S. District Court for the Western District of Washington has given PIMCO until August 16 to explain why it should be permitted to withdraw the documents from the record rather than have the court unseal them.