Bond giant Pacific Investment Management Co. said Monday that it could be sued by the country’s top securities regulator over how it valued assets in one of its most popular funds aimed at small investors, the Wall Street Journal reported today. The Pimco Total Return Active ETF, an exchange-traded fund previously managed by star investor Bill Gross, has been under investigation by the Securities and Exchange Commission for at least a year for allegedly artificially boosting returns from its trading of certain mortgage bonds. Pimco disclosed that it received a so-called Wells notice from the SEC concerning the ETF, which means the agency’s staff intends to recommend a civil action against the firm related to its investigation. The notice isn’t a formal allegation of wrongdoing and won’t necessarily lead to an enforcement action. The SEC is looking at a four-month time period between the fund’s launch on Feb. 29, 2012 and June 30, 2012, examining how Pimco valued smaller-size positions in nonagency mortgage-backed securities purchased by the ETF during that time, according to the release. The agency is looking at the fund’s performance disclosures for that period, and at Pimco’s compliance policies and procedures.
