Administration June 5, 2004

SEC Files Fraud Charges Against PIMCO

May 6, 2004 (PLANSPONSOR.com) - The U.S. Securities and Exchange Commission (SEC) filed civil fraud against PIMCO Advisors Fund Management LLC, affiliates and officers in federal court today.
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The SEC said charges were filed in connection with an undisclosed market timing arrangement with Canary Capital Partners LLC.   Named in the suit were PIMCO Advisors Fund Management LLC, PEA Capital LLC, PIMCO Advisors Distributors LLC, Stephen J. Treadway and Kenneth Corba.

Filed in theUnited States District Court in Manhattan, the complaint alleges from February 2002 to April 2003, the PIMCO Funds’ advisers provided “timing capacity” in their mutual funds to Canary in return for long-term investments in a mutual fund and a hedge fund from which management fees were earned. The prospectuses for the mutual funds failed to disclose to investors that an agreement had been made to permit timing in the funds in exchange for sticky assets and gave “the misleading impression that the PIMCO mutual funds discouraged timing.”  

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Additionally, even as PIMCO allowed Canary to engage in this market timing activity,PIMCO Advisors Distributor,the distributor of the PIMCO Funds, simultaneously prevented numerous other shareholders from engaging in the same rapid trading as Canary by issuing warning letters, freezing accounts, or blocking trades, the SEC said.

These actions, the SEC contends, were in violation of a number of federal securities laws.

“This action represents yet another example of a well-known mutual fund adviser placing its own interests above those of the fund shareholders through an undisclosed market timing arrangement. Our action seeks to hold accountable all those responsible for this betrayal of trust – including, most significantly, PIMCO’s senior management,” said the SEC’s Director of the Division of Enforcement Stephen Cutler.

Similar crusades have been launched by the SEC, in conjunction with New York Attorney General Eliot Spitzer, against Alliance Capital Management, Massachusetts Financial Services Co., FleetBoston Financial, Bank of America, and Putnam Investments, which have all resulted in out-of-court settlements. Those settlements include:

  • Alliance – $150 million in disgorgements, including $100 million in civil penalties
  • Bank of America – $250 million in disgorgements and $125 million in penalties
  • MFS – $175 million in disgorgements, $50 million in civil penalties
  • FleetBoston – $70 million in disgorgements, $70 million in civil penalties.
Administration June 4, 2004

Independence-Minded Xerox Nominates Ann Reese to Board

April 18, 2003 (PLANSPONSOR.com) - Xerox Corp. has nominated an outsider to its board of directors less than three weeks after the California Public Employees' Retirement System (CalPERS) labeled the company public enemy number one for corporate governance issues.
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Ann Reese, the former chief financial officer for ITT Corp. and current executive director of the Center for Adoption Policy Institute, was Xerox’s choice to bring an independent director on board.   With the selection of Reese, Xerox says 78% of its proposed board has been deemed to be independent of the company, with only Anne Mulcahy, the company’s chairman, and Yotaro Kobayashi, chairman of Xerox affiliate Fuji Xerox Co., not classifed as independent. Shareholders will vote on the selection in May, according to a Reuters report.

The move comes less than three weeks after CalPERS, the nation’s largest public pension fund, put the Stamford, Connecticut based company at the top of its 2003 list of America’s poorest corporate performers.    Among the complaints the fund had about Xerox was its small, stagnant board of directors and the lack of separation between the positions of chairman and CEO (See  CalPERS Releases Corporate Governance Focus For 2003 ).

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However, Xerox was not alone on this year’s list.  Selecting from a $131 billion pool of investments in more than 1,800 US companies, CalPERS based its decisions on stock performance, corporate governance practices and an analysis of a company’s economic value-added (EVA) evaluation, net operating profit after tax, minus its cost of capital.     When it was all said and done, CalPERS drew the cross-hairs on six companies it will target:

  • Gemstar-TV Guide International Inc
  • JDS Uniphase Corp
  • Manugistics Group, Inc
  • Midway Games Inc
  • Parametric Technology
CalPERS spokesman Brad Pacheco told PLANSPONSOR.com that “we are pleased they added an independent director to the board.”    However, referencing a letter dated March 26, 2003 sent from CalPERS’s Director of Corporate Governance Ted White, to Mulchay, Pacheco added the action comes up short saying, “we would like them to move further beyond this and add a couple other independent directors to the board.”   No comment was offered on the selection of Reese.

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