PIMCO exchange-traded fund faces SEC investigation

The Securities and Exchange commission is investigating whether a PIMCO exchange-traded fund artificially inflated its returns, according to the Wall Street Journal.

Investigators are trying to determine if the fund bought securities at a discount and then reported a higher price shortly after purchase. Bonds are not traded or priced as often as stocks, and funds sometimes have to use prices provided by third parties.

Pricing of mutual fund shares is an issue that the SEC takes extremely seriously, as it is at the heart of an investor's trust in the investment. It's illegal for a fund to give misleading information about a fund's performance, even if done so unwittingly.

The fund, Pimco Total Return ETF, has $3.6 billion in assets and is the 25th-largest exchange-traded bond funds. Its manager, Bill Gross, is chief investment officer of PIMCO and has been widely quoted for his expertise in the bond market.

Gross' star has fallen recently, however, as his flagship open-ended fund, PIMCO Total Return, has lagged other bond funds and as key personnel has left the firm — most notably Mohammed El-Erian, former co-chief investment officer of the Newport Beach, Calif., investment firm.

"PIMCO has been cooperating with the SEC in this non-public matter, and we take our regulatory obligations and responsibilities to our clients very seriously," said PIMCO spokesman Mark Porterfield. "We believe our pricing procedures are entirely appropriate and in keeping with industry best-practices."

The SEC declined to comment.