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Pimco fined $20m for misleading investors on active ETF

Investment manager Pimco has been fined nearly $20m (£15.9m, €18.9m) by the US Securities and Exchange Commission (SEC) for misleading investors about the performance of its actively managed Total Return ETF.


According to a statement by the regulator, the fund, run by Pimco’s former star bond manager Bill Gross, attracted significant investor attention as it outperformed even its flagship mutual fund in the four months following its launch in February 2012.

However, it soon came under fire for telling investors different reasons for the ETF’s outperformance.

‘Odd lots’ strategy

“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,” the SEC said.

Pimco’s odd lot strategy caused the Total Return ETF to overvalue its portfolio, it added.

Andrew Ceresney, director of the SEC enforcement division, said the company “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.”

He added that all investment advisers must “accurately describe the significant sources of performance and the strategies being used.”

Overvalued portfolio

The SEC said Pimco valued these bonds using prices provided by a third-party pricing vendor for round lots, which are larger-sized bonds compared to odd lots.

“By blindly relying on the vendor’s price for round lots without any reasonable basis to believe it accurately reflected what the fund would receive if it sold the odd lots, Pimco overstated the Total Return ETF’s net asset value (NAV) by as much as 31 cents.

“Pimco overstated its NAV almost every day for four months because its policies and procedures were not reasonably designed to properly address issues concerning odd lot pricing,” said Ceresney.

In a statement on its website, Pimco said it was “pleased to have resolved the Bond ETF matter with the SEC.

“Pimco is committed to conducting its business in a manner that meets or exceeds the expectations of its regulators. Accordingly, the firm has enhanced its policies and procedures relating to valuation of smaller-sized positions and performance attribution disclosure,” added the asset manager.