Pimco Gets Wells Notice Over Markings of Total Return ETF

Pacific Investment Management Co. said that the SEC has sent it a Wells notice indicating that its staff is recommending that the regulator file a civil case against the financial firm over the way securities were marked in its PimcoTotal Return Active Exchange-Traded Fund. That’s the ETF version of Pimco’s Total Return Fund.

The Wells notice is related to the valuation of smaller positions in mortgage-backed securities that the government did not guarantee for several months in 2012, as well as disclosure regarding performance and procedures and policies related to compliance. Bloomberg reports that according to someone that knows bout the investigation, The regulator has been looking at whether the total return ETF bought small lots of bonds at a discount price and marked them up when valuing holdings to artificially inflate returns.

Although the ETF has continued to see deposits, the Total Return mutual fund experienced redemptions, especially after the departure of founder Bill Gross last year. News of his exit came within days of the news that the SEC was probing whether Pimco had inflated ETF returns.

The SEC’s investigation revolved around claims not unlike those filed in a wrongful termination lawsuit by Jason Williams, an ex- money manager at Pimco. His complaint noted “artificial manipulation of the price” of the ETF around the time he was let go. However, he withdrew is case a few days after submitting it.

Typically, the SEC will send out a Wells Notice after finding there is enough evidence to warrant a civil lawsuit against a firm or person. The notice gives the recipient a chance to persuade the regulator that there should be no case.

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The hits keep on coming at PIMCO, Business Insider, August 3, 2015

Pimco Gets Warning From SEC That Lawsuit Could Be Coming, The Wall Street Journal, August 3, 2015