Pacific Investment Management Company (PIMCO) agreed to pay a combined $9 million to resolve two separate actions brought by the Securities and Exchange Commission (SEC) regarding alleged violations of the Advisers Act.
PIMCO was fined $6.5 million in a case alleging disclosure violations, in addition to being assessed a $2.5 million penalty in a case alleging policy and procedure failures. The firm agreed to cease and desist and be censured in settling each action, said the SEC in a press release Friday.
The details: In the disclosure case, the SEC alleged PIMCO inadequately disclosed paired interest rate swaps in its PIMCO Global StocksPLUS & Income Fund (PGP) portfolio “had become a material source of distributable income, which enabled PIMCO to maintain PGP’s dividend rate. The continued use of paired swaps also contributed to a decline in the net asset value of PGP.”
The alleged violations, which occurred from September 2014 through August 2016, affected PGP’s annual shareholder reports for the fiscal years ending 2014 and 2015, the SEC stated.
In the policies and procedures case, PIMCO was accused of failing to accurately waive certain advisory fees consistent with its agreement with a mutual fund it managed, the PIMCO All Asset All Authority Fund. From April 2011 to November 2017, PIMCO “failed to waive approximately $27 million of the authority fund’s advisory fees due to an error in a formula PIMCO created and provided to its sub-administrator to calculate the fee waiver amount,” according to the SEC.
PIMCO’s policies and procedures were not reasonably designed to prevent the issue, the SEC said.
Compliance considerations: Beginning in July 2018, PIMCO remediated the alleged deficiencies in its policies and procedures by correcting fee waiver calculations, enhancing its audit procedures, addressing oversight of the sub-administrator’s fee waiver calculations, and engaging a third party to review and approve its internal controls for the authority fund, the SEC stated.
PIMCO reimbursed the authority fund’s shareholders more than $30 million in unwaived fees, lost performance, and interest, according to the agency.
Company response: “We are pleased to resolve these matters relating to issues which occurred in two funds more than five years ago and which PIMCO had fully addressed prior to the SEC’s investigations,” a company spokesman said in an emailed statement.