PIMCO To Pay $20 million To Settle SEC Charges

Josh O'Neill

2 December 2016

, PIMCO's Total Return ETF attracted significant investor attention as it outperformed even its flagship mutual fund in the four months following its launch in early 2012. The initial success was attributed to buying smaller-sized bonds known as “odd lots” as part of a strategy to bolster the fund's performance out of the gate.

However, in monthly and annual reports to investors, PIMCO provided misleading reasons for the ETF's early success and failed to disclose that the strategy was not sustainable as the fund grew in size.

Additionally, the US financial watchdog found that PIMCO's strategy caused the Total Return ETF to overvalue its portfolio and consequently failed to accurately price a subset of funds shares. The global investment manager valued these bonds using prices provided by a third-party pricing vendor for round lots, which are larger-sized bonds compared with odd lots. In doing so, PIMCO overstated the ETF's net asset value by as much as 31 cents.

“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,” said Andrew Ceresney, director of the SEC’s enforcement division, adding: “Investment advisors must accurately describe the significant sources of performance and the strategies being used.”