The New Jersey attorney general filed civil fraud charges against investment advisers for Pimco Funds, the nation's fifth-largest mutual fund group, alleging that investors were hurt because the company allowed improper short-term trading of its bond and stock funds.
Pimco Funds disclosed last week it had been notified by the Securities and Exchange Commission that it was likely to face charges for allowing a New Jersey hedge fund, Canary Capital Partners LLC, to conduct rapid trading in shares of Pimco stock funds run by PEA Capital LLC for a period of several months.
Also charged in the case was Pacific Investment Management Co., or Pimco, the massive bond shop based in Newport Beach, Calif., which has about $370 billion in assets under management. Both PEA and Pacific Investment Management are units of German insurer Allianz AG ADS (AZ).
In a statement yesterday, the independent trustees of the Pimco funds said New York-based PEA would repay the funds affected $1.6 million for harm caused by the trading known as market timing.
But the complaint filed in New Jersey Superior Court yesterday goes beyond the activities acknowledged by Pimco Funds last week. In addition to the alleged market timing of stock funds, the suit contends that improper trading was allowed in a pair of bond funds run by Pimco.
Investigators for New Jersey Attorney General Peter C. Harvey also contend that Canary -- the hedge fund that was the first to be charged in the fund trading scandal that began in September -- was allowed to market time between February 2002 and September 2003. Canary made more than 200 market timing trades with a total value of over $4 billion, the suit said.
In exchange, the New Jersey complaint said, Pimco Funds accepted tens of millions of dollars in so-called sticky assets, which are long-term investments made in mutual funds or hedge funds from which Pimco would earn greater management fees. Pimco is also accused of providing nonpublic information about the holdings of its fund portfolios to a brokerage firm with close ties to Canary.