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Regulation and Compliance > Federal Regulation > SEC

Civil Fraud Charges Filed against PIMCO Advisors

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WASHINGTON (–The Securities and Exchange Commission today filed in federal court civil fraud charges against PIMCO Advisors.

The charges came as no surprise following a February lawsuit filed against the Newport Beach, Calif. company and its parent, Allianz Dresdner Asset Management of America LP, by the New Jersey Attorney General’s office. That lawsuit claimed the company allowed market timing and late trading in mutual funds managed and distributed by PIMCO (see).

SEC officials said that Canary Capital Partners LLC, Secaucus, N.J., conducted 108 round-trip exchanges totaling more than US$4 billion in several PIMCO funds as a result of a special market-timing arrangement. Canary used more than US$60 million in a timing capacity in several mutual funds and invested US$27 million in “sticky” assets into a mutual fund and a hedge fund, according to the SEC complaint.

Earlier this year, PIMCO Chief Investment Officer Bill Gross told investors that the dealings with Canary were unfortunate but didn’t hurt shareholder value (see).

Filed in United States District Court in Manhattan, the suit names as defendants: PIMCO Advisors Fund Management LLC, PEA Capital and PIMCO Distributors LLC. Also named are Stephen J. Treadway, chief executive of the PAFM and PIMCO Distributors, and Kenneth W. Corba, former chief executive of PEA. Both are charged with defrauding investors in connection with the undisclosed market-timing arrangement with Canary.

In a statement, Stephen Cutler, director of the SEC’s division of enforcement, said, “Our action seeks to hold accountable all those responsible for this betrayal of trust–including, most significantly, PIMCO’s senior management.”

In a statement, PIMCO officials were quick to point out that during meetings with the SEC it was confirmed that entities “affiliated with Edward Stern and Canary Capital Partners” had been investors in PIMCO Funds. But PEA concluded that the type of short-term trading they engaged in was “potentially inconsistent with the company’s core business and its fiduciary responsibility to shareholders.”

During an independent investigation, only one fund (the PEA Growth Fund) had been diluted by less than US$1.2 million, according to officials. Also, PEA had instructed Mr. Stern and Canary to remove its investments by October 2002. Still remnants of Canary’s investments remained in one fund until May 2003.

“We are disappointed the SEC chose to take this action now and we look forward to completing settlement discussions with the SEC, which have been underway, so we can achieve a prompt and equitable resolution to this matter,” PIMCO officials said.

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