| WASHINGTON/NEW YORK
WASHINGTON/NEW YORK Pacific Management
Investment Co (Pimco) will pay $20 million to settle charges it
misled investors about the performance of a top exchange-traded
fund it manages, U.S. regulators said on Thursday.
The Securities and Exchange Commission's settlement with
Pimco, a unit of German insurer Allianz SE, came more
than two years after bond manager Bill Gross, who managed PIMCO
Total Return Exchange-Traded Fund (BOND), left the
company for smaller rival Janus Capital Group Inc.
The SEC said Pimco overstated the ETF's value and provided
"misleading" reasons for the fund's early success, which was
premised on buying small pieces or "odd lots" of
mortgaged-backed securities that sell at a discount to larger
The asset manager used a third-party pricing service that
valued the bonds as though they were larger pieces, overstating
its performance, regulators said.
Despite fairly small trades, the strategy added as much as
54 percent to the fund's monthly cumulative performance returns
in 2012, the SEC said.
But the company gave "ambiguous" explanations to the public,
the fund's board and staff who faced questions from clients
about the performance, the SEC said, at one point touting
performance gains due to "well-publicized" inefficiencies in the
"Pimco misled investors about the true long-term impact of
its odd-lot strategy and denied them the opportunity to make
fully informed investment decisions about the Total Return ETF,"
Andrew Ceresney, director of the SEC's enforcement division,
said in a statement.
Pimco spokesman Michael Reid said the company is "pleased"
to resolve the matter with the SEC.
"The firm has enhanced its policies and procedures relating
to valuation of smaller-sized positions and performance
attribution disclosure," Reid said in a statement.
Pimco, which manages nearly $1.6 trillion and is based in
Newport Beach, Calif., also agreed to retain an independent
compliance consultant as part of the settlement.
The resolution also brings the company closer to the end of
a scarring, acrimonious split from Gross in 2014 that caused it
to hemorrhage assets.
The BOND ETF, launched in 2012 and initially run by Gross,
was once the largest ETF managed by someone who actively decided
how the fund's assets would be invested. Most of the larger ETFs
merely track an index.
The well-known bond investor is still pursuing a $200
million lawsuit claiming he was forced to resign so that his
bonus could be divided among others.
Assets in BOND fell from $5.2 billion at its 2013 peak to
$2.3 billion currently, according to data from Thomson Reuters
Lipper and Pimco.
(Additional repoorting by Sruthi Shankar in Bengaluru)