SEC to Initiate Fund Trading Action Against PIMCO

February 27, 2004 ( - PIMCO Advisors Fund Management (PIMCO) has revealed that US regulators notified the company they were recommending action seeking return of ill-gotten profits and civil penalties as a result of a market-timing investigation.

PIMCO, a unit of German insurer Allianz AG, said it was notified February 12 by the US Securities and Exchange Commission (SEC) of its intentions to recommend full commission action, according to news reports.

Meanwhile, the California Public Employees’ Retirement (CalPERS) system, the nation’s largest public pension fund, announced it is investigating PIMCO to determine if the Newport Beach, California bond traders should continue to manage part of its $165-billion portfolio.

New Jersey Attorney General Peter Harvey filed a fraud suit earlier this month alleging that PIMCO allowed hedge fund Canary Capital Partners LLC, to rapidly buy and sell shares to the detriment of other shareholders (See  PIMCO Hit with Garden State Trading Suit ). In January, California Attorney General Bill Lockyer said he was investigating PIMCO and two other California fund families accused of paying brokers to give preference to their funds (See  PIMCO Confirms CA Subpoena ).

Bill Gross, PIMCO’s chief investment officer, who is widely regarded throughout the industry as a king of bond trading, insisted in a  statement posted to the firm’s Web site that the bond funds had done nothing wrong and that he would fight to restore their good name.

The $208-million PIMCO manages is a fairly minor part of CalPERS’ $40.4 billion fixed-income portfolio. It’s also small in comparison to PIMCO’s more than $374 billion under management. However, the public pension fund has been in the forefront of the crusade against improper mutual-fund practices, so its actions carry a lot of weight.

New York State Attorney General Eliot Spitzer, the SEC, and regulators in a number of states have been pursuing a wide-ranging investigation into abusive mutual fund trading practices focusing primarily on market timing and late trading.