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Fund Spy

PIMCO Settles With SEC Over Its Total Return ETF

The firm must pay fines and beef up pricing and disclosure procedures.


Back in August 2015, PIMCO announced that it had received a Wells notice from the SEC. (We wrote about it here.) The question was whether PIMCO had mispriced certain nonagency mortgage-backed securities during the early months following the February 2012 launch of its  PIMCO Total Return Active ETF (BOND). In particular, the SEC took issue with the firm’s pricing of a subset of the fund’s nonagency holdings bought in increments smaller than $1 million, referred to as “odd lots.” Pricing vendors quote daily prices based on “round lot” sizes of $1 million or more, which is generally the size at which transactions between institutions occur. The SEC was concerned that PIMCO was overstating the value of the securities by buying odd lots at a discount and then marking them at the higher price quoted by the pricing vendor. The SEC also raised issues about how the firm explained the fund’s performance to investors, as well its compliance policies and procedures.

On Thursday, Dec. 1, the SEC released an administrative order detailing a settlement with PIMCO on the matter. PIMCO also put out a piece responding to and explaining the settlement. For more context on the overall pricing issues, in particular, we’d recommend having a look at the aforementioned piece that we wrote after the Wells notice was issued. Here are some key takeaways from the agreement itself.

Eric Jacobson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.