PIMCO agreed Thursday to pay almost $20 million to the Securities and Exchange Commission for misleading investors about the performance of one of its first actively managed ETFs — the PIMCO Total Return ETF (BOND) — and for failing to accurately value certain fund securities.
According to the SEC's order, PIMCO's Total Return ETF, which was formerly managed by PIMCO co-founder Bill Gross, attracted significant investor attention as it outperformed even its flagship mutual fund in the four months following its launch in February 2012.
The SEC states that the initial performance was attributable to buying smaller-sized bonds known as "odd lots" as part of a strategy to help bolster performance out of the gate.
"But in monthly and annual reports to investors, PIMCO provided other, misleading reasons for the ETF's early success and failed to disclose that the resulting performance from the odd lot strategy was not sustainable as the fund grew in size," the SEC states.
PIMCO agreed to pay a penalty of $18.3 million and $1.5 million in disgorgement fees and interest. Gross wasn't named in the administrative order.
The Newport Beach, California-based firm said last August that it had received a Wells Notice from the SEC indicating the regulator's staff was recommending civil action against the firm related to an investigation into the ETF.
Andrew Ceresney, director of the SEC's Division of Enforcement, noted in a statement that PIMCO "misled investors about the true long-term impact of its odd lot strategy and denied them the opportunity to make fully informed investment decisions" about the Total Return ETF. "Investment advisors must accurately describe the significant sources of performance and the strategies being used."
