SEC Charges PIMCO with Disclosure and Policy Violations
The Securities and Exchange Commission reportedly charged registered investment advisor PIMCO (Pacific Investment Management Company LLC) with disclosure and policies and procedures violations involving two PIMCO funds. The firm will reportedly pay $9 million to settle the two enforcement actions.
PIMCO, headquartered in Newport Beach, California, PIMCO has approximately $2.24 trillion in regulatory assets under management. According to the SEC, from September 2014 to August 2016, PIMCO allegedly failed to disclose material information to investors concerning the use by PIMCO Global Stocks PLUS & Income Fund (PGP) of interest rate swaps and the material impact of the swaps on PGP’s dividend.
The paired interest rate swaps in PGP’s portfolio had allegedly become a material source of distributable income, which enabled PIMCO to maintain PGP’s dividend rate. The continued use of paired swaps also reportedly contributed to a decline in the net asset value (NAV) of PGP. By failing to adequately disclose that a significant portion of PGP’s distributions came from paired interest rate swaps, PIMCO reportedly violated Section 34(b) of the Investment Company Act and Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder.
In the second action, the SEC alleged that from April 2011 to November 2017, PIMCO allegedly failed to waive approximately $27 million of advisory fees as required by its agreement with the PIMCO All Asset All Authority Fund.
The firm reportedly did not have adequate written policies and procedures concerning its oversight of advisory fee calculations and related fee waivers until at least 2018. PIMCO has reportedly disbursed to investors the $27 million in fees that should have been waived, plus interest and a performance adjustment. PIMCO reportedly agreed to a cease-and-desist order and a censure in each action and to pay a combined $9 million penalty.
PIMCO Allegedly Misled Investors regarding Total Return ETF
This isn’t the first time PIMCO has reportedly been in trouble with regulators due to disclosure failures. In December 2016, we reported that the firm paid nearly $20 million to settle charges that it misled investors concerning the performance of PIMCO’s Total Return ETF one of its first actively managed exchange-traded funds.
The fund apparently attracted significant investor attention for its surprising performance which was attributable to buying smaller-sized bonds known as ‘odd lots’ as part of a strategy to increase performance.
PIMCO allegedly misled investors by not telling them of the true long-term impact of its odd lot strategy and were denied the opportunity to make fully informed investment decisions about the Total Return ETF. The PIMCO Total Return ETF overvalued its portfolio due to the odd lot strategy, according to the SEC.
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Tags: disclosure failures, Pacific Investment Management Company LLC, PIMCO, SEC sanctions Last modified: June 21, 2023