The US Securities and Exchange Commission (SEC) could take legal action against PIMCO over valuations within its Total Return exchange-traded fund (ETF).
The Newport Beach, California-based asset manager announced last night that it had received a Wells Notice from the SEC relating to an investigation first reported in September last year.
“We will continue to engage with the SEC and we are confident that this matter will not affect our ability to serve our clients.” —PIMCO statementThe SEC has been investigating whether the asset manager overstated valuations of mortgage-backed securities held in PIMCO’s Total Return Active ETF. The investigation relates to “smaller-sized positions” purchased between the ETF’s launch on February 29 2012 and June 30 2012.
The $2.5 billion fund is a low-cost product based on the Total Return strategy run by Bill Gross, until he quit the group suddenly last year to join Janus.
The regulator has warned PIMCO of a “preliminary determination to recommend that the SEC commence a civil action” against the fund management group. The issuing of a Wells Notice is a preliminary procedure by the US regulator and does not imply that any wrongdoing has taken place.
“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,” PIMCO’s statement read. “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 PIMCO Total Return mutual fund—which is now run by Scott Mather, Mark Kiesel, and Mihir Worah—is not covered by the notice or the investigation. The fund has shrunk drastically in size in the past two years as investors have withdrawn cash due to underperformance and the departure of Gross. According to PIMCO’s website, the fund had $102.8 billion in assets at the end of June.
Related: Fade to Black; Gross Questions PIMCO’s Stability; The Divided Kingdom of Newport Beach