PEA Capital LLC, a New York-based equity mutual fund unit of the $143 billion PIMCO mutual fund family, has become the latest asset manager to disclose that it faces possible enforcement action by the Securities & Exchange Commission for allowing market timing activities.

According to PIMCO spokesman Philip Neugebauer, PEA had allowed Canary Capital Partners LLC, the hedge fund whose trading sparked the spreading federal and state probes of the mutual fund industry, to market time some of its funds. The Los Angeles Times reported, however, that PEA had allowed the market timing in return for Canary making investments in other PEA funds. In October 2002, says Neugebauer, PEA barred Canary from further trading and “eliminated” it as a client. Neugebauer says that Canary and its boss, Hartz Mountain heir Edward Stern, had not told PEA of his hedge fund activities and described his interest in the company’s funds as a long-term investment strategy.

While PIMCO had turned up Canary’s involvement some time ago during an internal probe spurred by an SEC request for information from 88 fund groups, Neugebauer said the firm did not believe it had been obliged to make any previous disclosure of the news.

PEA’s prospectuses do not ban market timing outright, but the company says it may refuse transactions with those engaged in market timing or other activities it feels are “detrimental.” Neugebauer says PEA has no immediate plans to change this policy. According to the Los Angeles Times, Canary earned less than $1 million in one PEA fund and lost large amounts in two others.

PEA is a corporate cousin of Pacific Investment Management Co. LLC, the Newport Beach, California, fixed income manager run by bond maven Bill Gross. Neugebauer said that the possible SEC action does not directly affect the bond unit.