New Jersey attorney general sues parent of Pimco mutual funds, charging fraud

Tuesday, February 17th 2004, 12:00 am
By: News On 6

NEWARK, N.J. (AP) _ The state attorney general's office sued the parent corporation of the Pimco mutual fund group Tuesday, charging it defrauded investors by allowing a major client to make improper trades worth more than $4 billion.

The lawsuit, filed in Superior Court in Essex County, alleges that Allianz Dresdner Asset Management of America allowed hedge fund operator Canary Capital Partners LLC and some affiliates to engage in more than 200 such transactions in Pimco funds from late 2001 through May 2003.

In exchange for the access, Canary made large investments in funds that generated substantial fees and other income for the defendants, the lawsuit alleges.

An Allianz spokeswoman at the company's London office did not respond to telephone and e-mail messages seeking comment Monday and Tuesday. A spokeswoman for Canary, which is not charged in the lawsuit, did not immediately return a call seeking comment Tuesday. In September, Canary agreed to a $40 million settlement to resolve New York state accusations of improper trading.

At issue is a type of trading known as market timing, which involves frequent ``in and out'' trades to exploit market conditions and inefficiencies in the way mutual funds are priced. The practice is not illegal but widely restricted by most funds because it tends to skim profits from other shareholders.

Regulators have said funds that officially prohibited market timing, but made exceptions for some clients, committed fraud.

The suit filed Tuesday also alleges numerous violations of the New Jersey Uniform Securities Law, and seeks the return of illegal profits, restitution for investors, and civil fines.

Other defendants include PEA Capital LLC (formerly Pimco Equity Advisors LLC), Pacific Investment Management Co. LLC, and Pimco Advisors Distributors LLC.