The Wall Street Journal is reporting that the Securities and Exchange Commission is investigating investment firm Pacific Investment Management Co. for artificially boosting returns of the Pimco Total Return ETF, a product aimed at retail investors.
It is the giant bond fund’s flagship exchange traded fund, and is managed by Pimco CEO Bill Gross himself.
The probe, which has been going on for months, has seen a surge of activity intensifying in recent weeks. Mr. Gross himself sat with regulators for a full day of questioning.
What officials want to know is if Pimco purchased assets within the ETF at lower prices, and then relied on higher estimates of the value of those assets to calculate their full value after purchase.
If that’s the case, according to the WSJ, it could be that investors were mislead to think the fund’s performance was much better than it was in reality.
Whether Pimco intentionally undervalued remains to be seen. The firm has yet to be accused of any wrongdoing.
A spokesperson for Pimco told the WSJ that the firm “has been cooperating with the SEC in this nonpublic matter, and we take our regulatory obligations and responsibilities to our clients very seriously. We believe our pricing procedures are entirely appropriate and in keeping with industry best practices.”
It’s already been a rough year for Pimco. The firm lost Mohamed El-Erian, its former CEO/co-CIO, earlier this year as investors continued to pull their money and Gross’ flagship fund lagged industry peers. Rumors that Gross was behaving erratically flooded the financial press, and Fox Business News’ Charlie Gasparino even reported that the fund’s office had a bed bug infestation.
This probe is the last thing the firm needs.
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