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PIMCO Put on Notice

We break down the SEC's inquiry into the firm's exchange-traded fund BOND.

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On Aug. 3, 2015, PIMCO announced that it had received a Wells notice from the SEC regarding  PIMCO Total Return Active ETF (BOND), the exchange-traded fund related to the firm's flagship  PIMCO Total Return (PTTRX) mutual fund. Specifically, the notice pertains to potential mispricing of nonagency mortgage-backed securities purchased by BOND between Feb. 29, 2012, and June 30, 2012, the first several months of the fund's operation. The SEC is also looking into the fund's performance disclosures during that period, and into PIMCO's compliance policies and procedures related to those areas.

What Is a Wells Notice and Why Did PIMCO Receive One?
A Wells notice indicates that the SEC is considering charges against a firm based on a specific set of events. PIMCO received a Wells notice following a preliminary SEC investigation into how the firm priced certain nonagency mortgage-backed securities purchased by BOND during the period in question. Our understanding is that the SEC is looking at how PIMCO may have assigned prices to "odd lots" of those securities.

Michael Herbst has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.

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