Asset manager, SEC settle for $20M
Pacific Investment Management Co. agreed to pay almost $20 million to settle allegations by the Securities and Exchange Commission that it didn’t properly value securities in an exchangetraded fund formerly run by Bill Gross.
Pimco misled investors about the performance of its Total Return Active ETF and failed to accurately value certain non-agency mortgage backed securities, the SEC said in a statement Thursday cq. The asset manager inflated the value of the fund by using third-party pricing for large bond purchases while investing in “odd lot” positions, or smaller-sized securities, which were acquired at lower prices, the regulator said.
“Investment advisers must accurately describe the significant sources of performance and the strategies being used,” Andrew Ceresney, head of SEC enforcement, said in a statement.
Pimco co-founder Gross, who left the firm in September 2014, previously managed the Total Return Active ETF, which opened in March 2012. Pimco, which didn’t admit or deny the SEC’s allegations, agreed to retain an independent compliance consultant. The firm will pay a penalty of $18.3 million, and disgorgement and interest of more than $1.5 million.
“Pimco is committed to conducting its business in a manner that meets or exceeds the expectations of its regulators,” Mike Reid, a spokesman for the Newport Beach, Calif.-based company said in an emailed statement. “Accordingly, the firm has enhanced its policies and procedures relating to valuation of smaller-sized positions and performance attribution disclosure.”
The SEC’s order, which doesn’t mention Gross by name, said the “portfolio manager approved and implemented” the odd lot strategy for non-agency [mortgagebacked securities], along with other strategies, to generate early positive returns for the fund.
“The crux of the SEC case is odd” because it calls for different pricing standards when valuing small and large lots of securities, Gross, who now works at Janus Capital Group Inc., said in an emailed statement. “The financial markets couldn’t function if that was the case.”
The Pimco Total Return Active ETF, which currently has $2.3 billion in assets, returned 1.4 percent this year, according to Bloomberg data. The SEC settlement has no effect on the fund’s current value, according to Pimco.