Pimco to pay $92 million to settle bond market manipulation suit

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Bond fund giant Pimco agreed to pay $92 million to settle a lawsuit accusing the Newport Beach firm of trying to corner part of the market for Treasury bonds in 2005.

The class action challenged trades by Pacific Investment Management Co. in futures tied to the price of 10-year Treasury notes.

The plaintiffs, including Chicago investment firm Breakwater Trading, had taken “short” positions in the futures contracts, agreeing to supply T-notes to Pimco when the contracts expired.

Breakwater and the other plaintiffs were betting that the market value of the notes would decline. But when the contracts ran out, according to the suit, the plaintiffs paid artificially high prices because Pimco had manipulated the market by buying up a large amount of the notes.

Pimco denied any misconduct in the trades and reiterated that position Thursday in a statement announcing the settlement, which requires court approval. A Pimco spokesman declined to elaborate on the statement. An attorney for the plaintiffs also declined to comment.

Ruling in 2007 that the suit could proceed, U.S. District Judge Ronald Guzman in Chicago wrote 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.”

Pimco said it would pay the $92-million settlement itself and not pass the cost on to the mutual funds it manages or to other clients. The plaintiffs had sought more than $600 million in damages.

The investment firm unsuccessfully appealed Guzman’s ruling to the federal appeals court and then to the U.S. Supreme Court, which last February let the ruling stand.

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--Abby Sewell

Abby Sewell
Bond fund giant Pimco agreed to pay $92 million to settle a lawsuit accusing the Newport Beach firm of trying to corner part of the market for Treasury notes in 2005.
The class action challenged trades by Pacific Investment Management Co. in futures tied to the price of 10-year Treasury notes.
The plaintiffs, including Chicago investment firm Breakwater Trading, had taken “short” positions in the futures contracts, agreeing to supply T-notes to Pimco when the contracts expired.
Breakwater and the other plaintiffs were betting that the market value of the notes would decline. But when the contracts ran out, according to the suit, the plaintiffs paid artificially high prices because Pimco had manipulated the market by buying up a large amount of the notes.
Pimco denied any misconduct in the trades and reiterated that position Thursday in a statement announcing the settlement, which requires court approval. A Pimco spokesman declined to elaborate on the statement. An attorney for the plaintiffs also declined to comment.
Ruling in 2007 that the suit could proceed, U.S. District Judge Ronald Guzman in Chicago wrote 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.”
Pimco said it would pay the $92-million settlement itself and not pass the cost on to the mutual funds it manages or to other clients. The plaintiffs had sought more than $600 million in damages.
Pimco unsuccessfully appealed Guzman’s ruling to the federal appeals court and then to the U.S. Supreme Court, which last February let the ruling in force stand.
abby.sewell@latimes.com