The Securities and Exchange Commission this week announced that PA Fund Management LLC (PAFM), PEA Capital LLC (PEA), and PA Distributors LLC (PAD) (collectively, the PIMCO Entities) agreed to a settlement of charges that they defrauded investors in the PIMCO Funds: Multi-Manager Series in connection with an undisclosed market timing arrangement.
Under the settlement, the PIMCO Entities have been ordered to pay $50 million, consisting of $10 million in disgorgement and a civil penalty of $40 million. Without admitting or denying the Commission's findings, the PIMCO Entities also consented to cease-and-desist orders, censures, and to undertake certain compliance and mutual fund governance reforms.
The PIMCO Entities will receive credit against their disgorgement obligation for approximately $1.6 million that they previously paid to the PIMCO Funds as restitution. The balance of the disgorgement and the entire penalty (approximately $48.4 million) will be distributed to shareholders of the mutual funds affected by the illegal market timing.
Stephen M. Cutler, Director of the SEC's Division of Enforcement, said, "The settlement we announce today is a resounding victory for mutual fund shareholders: it includes sizeable monetary sanctions; restitution for shareholders of the affected funds; and far-reaching structural reforms."
Randall R. Lee, Regional Director of the SEC's Pacific Regional Office in Los Angeles, added, "The principle here is a simple one - it's illegal for a mutual fund adviser to share non-public portfolio information with a favored investor or to enter into a secret, lucrative arrangement to permit a favored investor to engage in market timing. That's exactly what the PIMCO Entities did, and this $50 million settlement reflects their serious breach of trust."
In May 2004, the Commission brought civil fraud charges against the PIMCO Entities in United States District Court in Manhattan. Upon the entry of this administrative order, the Commission will seek to dismiss its federal court action against the PIMCO Entities with prejudice.
Source: U.S. Securities and Exchange Commission