PIMCO, Two Top Execs Hit with Fraud Charges

PIMCO Thursday became the latest mutual fund company to be slapped with civil fraud charges for allegedly defrauding investors by secretly allowing hedge fund Canary Capital Partners to trade rapidly in and out of its funds.

The Securities and Exchange Commission alleges that from February 2002 to April 2003, Canary engaged in roughly 108 improper trades worth more than $4 billion in several PIMCO funds.

Civil fraud charges have also been brought against two executives for their role in the undisclosed market-timing arrangement. They are Stephen Treadway, chief executive officer of PIMCO Advisors Fund Management and PIMCO Advisors Distributors as well as chairman of the board of trustees of PIMCO Funds, and Kenneth Corba.

Corba’s PIMCO Growth Fund provided Canary $30 million in timing capacity, while his PIMCO Select Growth Fund received $25 million in sticky assets from Canary. According to the SEC’s complaint, at the height of its agreement, Canary used more than $60 million in timing capacity in several different funds and invested $27 million in "sticky assets" in a mutual fund and a hedge fund

"Our action seeks to hold accountable all those responsible for this betrayal of trust – including, most significantly, PIMCO’s senior management," said Stephen Cutler, director of the SEC’s division of enforcement. Randall Lee, director of the SEC’s Pacific regional office in Los Angeles, added, "Quid pro quo deals like this have no place in the mutual fund business."

The news comes after PIMCO’s star bond fund manager vehemently denied allegations made by New Jersey regulators saying the firm had arrangements pertaining to sticky assets, late trading or stale pricing arbitrage, and improper dissemination of fund holdings. The SEC is seeking injunctive relief, disgorgement, fines and a ban preventing the defendants from serving as fiduciaries of any registered investment company.

For reprint and licensing requests for this article, click here.
Money Management Executive
MORE FROM FINANCIAL PLANNING