Pimco loses Supreme Court appeal in bond market manipulation case
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Bond fund giant Pimco on Monday lost its appeal to the Supreme Court to stop a class-action lawsuit alleging that the firm tried to corner the market in certain Treasury note futures in 2005.
Chicago investment firm Breakwater Trading and other plaintiffs in the suit are seeking more than $600 million in damages from Newport Beach-based Pimco. The plaintiffs claim that they had to pay dearly to close out their trades in T-note futures because of Pimco’s alleged market grab.
From Bloomberg News:
The justices let stand a federal appeals court ruling that said traders could press their suit against the company as a class action. Pimco, manager of the world’s largest bond fund, argued unsuccessfully that many of the investors in the class actually would have made money had the market manipulation taken place as alleged.The five-year-old lawsuit accuses Pimco of cornering the market for contracts on 10-year Treasury notes during May and June 2005. Pimco allegedly used its holdings to drive up the price for traders who had sold short -- that is, contracted to sell notes on a specified later date -- and needed to cover their positions.In letting the suit go forward, the 7th U.S. Circuit Court of Appeals [in July] said that “although some of the class members probably were net gainers from the alleged manipulation, there is no reason at this stage to believe many were.”
A Pimco spokesman declined to comment.
The class-action notice from the Court of Appeals is here.
Pimco, which now manages $1 trillion in assets, was less than half that size in 2005 but still was a major player in the bond market.
U.S. District Judge Ronald Guzman wrote in 2007 that “considering the totality of the circumstances, it can be reasonably inferred from the facts alleged that Pimco Funds intended to cause artificial prices or otherwise manipulate the futures market.”
The firm’s bond guru, Bill Gross, has denied that Pimco sought to corner the market. “There wasn’t any squeeze” on Treasury short-sellers, Gross said in a Bloomberg interview about the case in 2008. “When you’re this size, and this big, you’re a target of class-action legal maneuvering.”
-- Tom Petruno