Pacific Investment Management Company (PIMCO) will pay $9m to settle two enforcement actions with the SEC over allegations that it broke federal disclosure rules when advising on two funds. 

In the first action, the SEC said PIMCO failed to disclose material information to investors between September 2014 and August 2016 regarding the use by one of its funds (PIMCO Global StocksPLUS & Income Fund or “PGP”) of interest rate swaps and the impact they had on the fund’s dividend.

The second action was about PIMCO’s failure to waive about $27m of advisory fees between April 2011 and November 2017, thanks to an error in a formula it used to tabulate fees. This was in relation to another fund, the PIMCO All Asset All Authority Fund.

A US-based investment company that focuses on fixed-income investments, PIMCO had $1.8trn in assets under management as of March 31, 2023.

Policy & procedure lapses

Until at least 2018, PIMCO did not have adequate written policies and procedures concerning its oversight of advisory fee calculations and related fee waivers, the SEC said.

In the first settlement action, the SEC said PIMCO inadequately disclosed information concerning paired swaps in PGP’s annual shareholder reports filed at PGP’s fiscal years ending 2014 and 2015, specifically that part of it carried a substantial risk of capital loss.

In the second settlement action, the SEC said PIMCO employed a contractor – a sub-administrator – to help it calculate its fees.

“These cases highlight our continued focus on ensuring that firms adequately disclose material information and implement reasonably designed policies and procedures.”

Corey Schuster, co-chief of the SEC’s enforcement division’s asset management unit

Although the agreement it had with the sub-administrator indicated that PIMCO’s designated officer would review the sub-administrator’s calculations, according to the SEC PIMCO failed to adopt and implement policies and reasonably designed processes in place to do so.

Even though PIMCO retained authority, control, oversight, and the responsibility to review the sub-administrator’s fee waiver calculations for the Authority Fund, there was no reasonably designed process in place to oversee the calculations for 79 months, the SEC said.

“These cases highlight our continued focus on ensuring that firms adequately disclose material information and implement reasonably designed policies and procedures,” said Corey Schuster, co-chief of the SEC’s enforcement division’s asset management unit. “PIMCO failed to comply with both of these critical obligations.”

A PIMCO spokesperson issued a statement about the settlement, saying: “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.”