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Pimco Settlement Is Expected Today

The fund group will agree to make payments to end regulators' probe of its revenue-sharing practices with certain brokerages, sources say.

September 15, 2004|Tom Petruno and Josh Friedman | Times Staff Writers

The Pimco mutual fund group, which Monday settled federal charges of allowing improper trading in its stock funds, today is expected to settle a joint federal and state investigation into so-called revenue-sharing practices with brokerages.

The deal, first reported in The Times on Sept. 4, is expected to include a payment of at least $10 million to the Securities and Exchange Commission. In addition, the Pimco group would pay $5 million to California, plus investigative costs to state Atty. Gen. Bill Lockyer's office, according to people familiar with the agreements who spoke on condition of anonymity.

Spokesmen for Pimco, the SEC and Lockyer's office declined to comment.

The investigations have focused on whether and how the Pimco group disclosed payments it had made to certain brokerages that sold its stock mutual funds to investors.

The company's stock funds are based on the East Coast. Its bond mutual funds are managed separately by Pacific Investment Management Co. in Newport Beach.

Fund companies sometimes reward brokerages for promoting their products by either directing commission-generating stock trades to the brokerages or by making hard-money payments to them.

The practices generally are legal if fully disclosed. But regulators have said that some fund companies appear to have fallen short in their disclosure -- meaning that investors may be unaware of incentives brokers have to sell particular funds.

The SEC has said it is examining revenue-sharing practices at about a dozen fund companies. In California, the SEC and Lockyer's office have been jointly investigating such practices at Pimco as well as at San Mateo-based Franklin Resources Inc., the parent of the Franklin and Templeton funds, and at Los Angeles-based American Funds, which are managed by Capital Group Cos.

The SEC has settled only one other revenue-sharing case with a fund company: Massachusetts Financial Services Co., parent of the MFS Funds, agreed in February to pay $50 million to settle charges that its disclosure was inadequate.

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