(Reuters) - Pacific Investment Management Co said on Monday it may face U.S. Securities and Exchange Commission civil charges over whether it inflated the returns of a popular exchange-traded fund once managed by prominent bond investor Bill Gross.
Pimco, a unit of Germany’s Allianz SE (ALVG.DE), said it received a “Wells notice” from the SEC related to its Pimco Total Return Active Exchange-Traded Fund (BOND.P), which is aimed at smaller investors.
It said the SEC is focusing on whether the fund properly valued small stakes in non-agency mortgage-backed securities it bought from its Feb. 29, 2012 inception to June 30, 2012, leading to inaccurate disclosures about the fund’s performance.
That could make it appear as though the fund had posted quick gains, making it easier to attract investors. Pimco also said the SEC is also reviewing its compliance policies and procedures.
A Wells notice indicates that SEC staff plan to recommend that the regulator bring a civil enforcement action, and gives the defendant a chance to show why no charges are justified.
It does not indicate that wrongdoing occurred, or that charges will be forthcoming.
Gross was at the time Pimco’s chief investment officer, and had in 2011 lagged his average peer at Pimco Total Return (PTTRX.O), which he built into the world’s largest bond fund.
The ETF returned more than 6.2 percent in its first four months, roughly twice the gain at Total Return, according to Morningstar Inc.
Strong early returns helped the ETF boost assets from about $100 million at its inception to $3.6 billion by September 2014, when Gross left Pimco to join Janus Capital Group Inc JNS.N. It now has about $2.5 billion of assets.
In a statement, Pimco said it is confident the matter will not affect its ability to serve clients. A spokesman for the Newport Beach, California-based firm declined to elaborate.
Gross now runs the Janus Global Unconstrained Bond Fund (JUCAX.O). A spokeswoman for Janus did not immediately respond to requests for comment.
Pimco announced the Wells notice after U.S. markets closed. Janus shares fell 3 cents to $16.35 in trading on the New York Stock Exchange.
Reporting by Jennifer Ablan and Jonathan Stempel in New York; Editing by Alan Crosby and Chris Reese