The rough ride for PIMCO just got rougher. The Newport Beach-based bond giant revealed last week that it has received a so-called Wells Notice from the Security and Exchange Commission, informing the firm that the regulatory agency is recommending civil action related to its Total Return Active ETF.
The Wall Street Journal, which first reported the SEC’s preliminary investigation last September, says that PIMCO is accused of “allegedly artificially boosting returns from its trading of certain mortgage bonds.” The paper notes that the notice isn’t a formal allegation of wrongdoing and won’t necessarily lead to an enforcement action.
“The SEC is looking at a four-month time period between the fund’s launch on Feb. 29, 2012 and June 30, 2012, examining how PIMCO valued smaller-size positions in non-agency mortgage-backed securities purchased by the ETF during that time, according to the release,” according to the Journal. “The agency is looking at the fund’s performance disclosures for that period, and at PIMCO’s compliance policies and procedures.”
The firm countered that the Wells process “provides us with our opportunity to demonstrate to the SEC staff why we believe our conduct was appropriate, in keeping with industry standards and that no action should be taken. We will continue to engage with the SEC and we are confident that this matter will not affect our ability to serve our clients.”
The Wells Notice is another episode in a recent rocky period for the company, beginning with the increasingly strained relationship with founder Bill Gross that eventually led to his departure for Janus Investments, and subsequent asset outflows that followed.
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
