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PIMCO Receives Wells Over Valuation, Disclosures

PIMCO announced Monday that it received a Wells Notice from the staff of the SEC regarding its Total Return Active ETF, ticker symbol BOND. According to the filing, the “matter principally pertains to the valuation of smaller sized positions in non-agency mortgage-backed securities purchased by BOND between its inception on February 29, 2012 and June 30, 2012, the fund’s performance disclosures for that period, and the firm’s compliance policies and procedures related to these matters.”  A Wells notice from the SEC is not a formal action and is not necessarily followed by an enforcement action.  As PIMCO’s announcement notes, “[t]he Wells process provides PIMCO with its opportunity to demonstrate to the SEC staff why it believes its conduct was appropriate, in keeping with industry standards.”

The Wall Street Journal had reported in September 2014 that the SEC was focused on odd-lot bonds that had been purchased at a discount, and subsequently given a higher value by pricing vendors relying on a larger pool of bonds. At the time, Bill Gross managed the ETF and the SEC conducted a day-long interview with the PIMCO founder, according to the article. A Wall Street Journal article reporting on the PIMCO announcement notes that the SEC had also interviewed fund trustees and other executives in connection with the investigation.