WASHINGTON – The PIMCO (search) mutual fund group's adviser and two affiliates will pay more than $20 million to settle charges involving failure to disclose payments made to brokers for promoting PIMCO fund shares, authorities said on Wednesday.
PEA Capital, PA Fund Management and PA Distributors — all tied to PIMCO and owned by German insurer Allianz AG (search) — settled with the Securities and Exchange Commission (search) and the California attorney general.
The SEC said the three units will disgorge $6.6 million in ill-gotten gains and pay fines totaling $5 million. California officials said PA Distributors will pay a $5 million fine and pay $4 million to cover the state's investigation costs.
The PIMCO adviser and affililiates failed to give investors and fund trustees enough information about deals made between 2000 and 2003 with brokerages to get them to promote PIMCO shares ahead of others, the SEC said.
Brokers were paid in arrangements known as "directed brokerage," "shelf-space" and "revenue-sharing" to promote the PIMCO Funds Multi-Manager Series funds, the SEC said.
The three affiliates neither admitted nor denied wrongdoing, as is customary in SEC legal settlements. They have also agreed to be censured by the commission, the SEC said.
The SEC said earlier this year an industry-wide probe had found many brokerage firms regularly took payments from mutual funds to tout the funds' shares ahead of others, and that investors knew little of these arrangements.
In March, the SEC fined MFS Investment Management (search), a unit of Canada's Sun Life Financial (SLF), $50 million for keeping its trustees and investors in the dark about deals with distributors to sell MFS funds.
"Our action today — like the action brought by the commission against (MFS) some six months ago — demonstrates the commission's resolve to ensure that mutual fund shareholders know how their money is being spent," said SEC Enforcement Director Stephen Cutler in a statement.
The Newport Beach, California-based fixed-income company known as PIMCO and the funds managed by it were not charged or involved in the SEC or the California settlements, said a spokesman for PA Distributors.
PA Distributors "voluntarily ceased all directed brokerage trades as of July 2003" and will undertake internal reforms, the spokesman said.
On Monday, PEA Capital and the two other affiliates agreed to pay $50 million to settle SEC charges of abusive "market timing," or allowing rapid buying and selling of PIMCO mutual fund shares.