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Regulation and Compliance > Federal Regulation > SEC

SEC Charges PIMCO With Fraud and Market Timing

By Staff Writer

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May 6, 2004 — The SEC said it filed civil fraud charges in federal court against PIMCO Funds for defrauding its mutual fund investors in connection with an undisclosed market timing arrangement with hedge fund Canary Capital Partners LLC.

The SEC’s action charges that from February 2002 to April 2003, Canary engaged in approximately 108 round-trip exchanges in an aggregate amount of over $4 billion in several PIMCO Funds under its special market timing arrangement.

Defendants in the suit include, among others, the fund family’s investment adviser, PIMCO Advisors Fund Management LLC (PAFM); and the investment sub-adviser for several PIMCO funds, PEA Capital LLC.

Stephen J. Treadway, chief executive officer of PAFM and chairman of the board of trustees for the PIMCO Funds: Multi-Manager Series; and Kenneth W. Corba, PEA’s former chief executive, were also named as defendants in the action.

The SEC alleges that Treadway approved the market timing arrangement in January 2002 but did not disclose his knowledge of the arrangement to the board until September 2003.

The SEC noted that at the height of the agreement, Canary used over $60 million in timing capacity in several different mutual funds and invested $27 million in “sticky assets” into a mutual fund and a hedge fund.

In addition, the SEC claims that as Canary was allowed to engage in this market-timing activity, PIMCO’s fund distributor, PIMCO Advisors Distributors LLC, “simultaneously prevented numerous other shareholders from engaging in the same rapid trading as Canary by issuing warning letters, freezing accounts, or blocking trades.”

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