Pimco Bond Guru Bill Gross : SEC sues another fund firm

» lcha - SEC sues another fund firm

May 6, 2004, 11:57PM

SEC sues another fund firm
By MARCY GORDON
Associated Press

WASHINGTON — Federal regulators accused Pimco Advisors Fund Management and two individuals of civil fraud Thursday for allegedly secretly giving a hedge fund special trading privileges in stock mutual funds involving more than $4 billion.

The Securities and Exchange Commission said Pimco and two related companies defrauded its mutual fund investors by allowing hedge fund Canary Capital Partners to "market time" Pimco fund shares from February 2002 to April 2003.

Market timing is a type of frequent trading that is not illegal but is restricted by most mutual funds because it skims profits from other shareholders.

Pimco is the latest to be swept up in an industrywide scandal that began last fall when New York Attorney General Eliot Spitzer accused Canary of securing special trading privileges at several big-name mutual fund companies, including Bank of America, Banc One, Janus and Strong.

Since then, Canary, Janus, Bank of America and other fund companies and executives have agreed to pay hundreds of millions of dollars to settle their cases.

In the new case, the SEC alleged that the chief executive officer of Pimco Advisors, who also was the chairman of a Pimco funds company, approved market-timing deals to enrich the management company at the expense of ordinary investors.

In the suit filed Thursday in federal court in Manhattan, the SEC is seeking civil fines and restitution from Pimco Advisors Fund Management; PEA Capital; Pimco Advisors Distributors; and Stephen Treadway, CEO of Pimco Advisors Fund Management and Pimco Advisors Distributors; and Kenneth Corba, former CEO of PEA Capital. Pimco Advisors Fund Management recently changed its name to PA Fund Management.

"We are disappointed the SEC chose to take this action now, and we look forward to completing settlement discussions with the SEC, which have been under way, so we can achieve a prompt and equitable resolution to this matter," PEA Capital said in a statement issued late Thursday.

Corba's attorney, Jim Rehnquist, said his client "adamantly denies" the allegations and "looks forward to his day in court and is confident he will prevail."

-- posted by lcha