SEC Files Fraud Charges Against PIMCO

May 6, 2004 ( - The U.S. Securities and Exchange Commission (SEC) filed civil fraud against PIMCO Advisors Fund Management LLC, affiliates and officers in federal court today.

The SEC said charges were filed in connection with an undisclosed market timing arrangement with Canary Capital Partners LLC.   Named in the suit were PIMCO Advisors Fund Management LLC, PEA Capital LLC, PIMCO Advisors Distributors LLC, Stephen J. Treadway and Kenneth Corba.

Filed in theUnited States District Court in Manhattan, the complaint alleges from February 2002 to April 2003, the PIMCO Funds’ advisers provided “timing capacity” in their mutual funds to Canary in return for long-term investments in a mutual fund and a hedge fund from which management fees were earned. The prospectuses for the mutual funds failed to disclose to investors that an agreement had been made to permit timing in the funds in exchange for sticky assets and gave “the misleading impression that the PIMCO mutual funds discouraged timing.”  

Additionally, even as PIMCO allowed Canary to engage in this market timing activity,PIMCO Advisors Distributor,the distributor of the PIMCO Funds, simultaneously prevented numerous other shareholders from engaging in the same rapid trading as Canary by issuing warning letters, freezing accounts, or blocking trades, the SEC said.

These actions, the SEC contends, were in violation of a number of federal securities laws.

“This action represents yet another example of a well-known mutual fund adviser placing its own interests above those of the fund shareholders through an undisclosed market timing arrangement. Our action seeks to hold accountable all those responsible for this betrayal of trust – including, most significantly, PIMCO’s senior management,” said the SEC’s Director of the Division of Enforcement Stephen Cutler.

Similar crusades have been launched by the SEC, in conjunction with New York Attorney General Eliot Spitzer, against Alliance Capital Management, Massachusetts Financial Services Co., FleetBoston Financial, Bank of America, and Putnam Investments, which have all resulted in out-of-court settlements. Those settlements include:

  • Alliance – $150 million in disgorgements, including $100 million in civil penalties
  • Bank of America – $250 million in disgorgements and $125 million in penalties
  • MFS – $175 million in disgorgements, $50 million in civil penalties
  • FleetBoston – $70 million in disgorgements, $70 million in civil penalties.