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Pimco Lawsuit Alleges World's Top Bond Fund Manager Engaged In Shady Practices

03/14/2013 01:22 pm ET | Updated Mar 14, 2013

The world's largest bond-fund manager frequently engaged in shady practices, including insider trading, price manipulation and actively betting against clients, according to a former employee who claims he was mistreated and fired for blowing the whistle.

The allegations are in a lawsuit filed last week by the former employee, Jason Williams, against his former employer, Pacific Investment Management Co., or Pimco, according to Courthouse News and The New York Times.

Williams, a former junk-bond manager at Pimco, according to Thomson Reuters, quickly withdrew the lawsuit and is in talks with Pimco about settling the case, The New York Times and Thomson Reuters have reported separately.

"As a matter of policy, we do not comment on legal matters," a Pimco spokesman said in an email to the Huffington Post. "However, PIMCO performs an appropriate review of all employee complaints or concerns."

Pimco and Williams' attorneys have declined to comment on the case to The Times or Reuters. Williams' attorney did not immediately respond to a request for comment from The Huffington Post.

Based in Newport Beach, Calif., Pimco manages about $2 trillion in assets. Its founder, William Gross, is a near-constant presence on business television and each month pens widely read, long-winded newsletters. As a measure of Pimco's influence, the U.S. government regularly employed it to help mop up after the financial crisis. At the time, many observers grumbled about the apparent conflict of interest inherent in the world's biggest bond-fund manager being in charge of keeping an eye on huge piles of bonds on behalf of the taxpayer.

According to Williams' lawsuit, we were right to be suspicious, based on how he claims Pimco treated clients and the public at large -- particularly during the financial crisis.

Williams claims that, in April 2009, "a senior manager stated on a television program that he was extremely optimistic about Bank of America credit while PIMCO was simultaneously aggressively selling Bank of America convertible preferred securities," according to Courthouse News.

The lawsuit also claims that, in 2008, a "senior manager" told Williams to pump up the rating on a bond so that it could placed in a particular fund of high-rated bonds sold to clients, Courthouse News reported. That is one of several allegations that, in late 2008, Pimco managers forced iffy, poorly performing investments on clients.

The lawsuit also claims that Pimco, "in or around late November or early December, 2008, attempted unlawful trading on inside information involving stock in El Paso Corporation," according to Courthouse News.

Most of these allegations cover the period of the financial crisis, when many money managers were likely trying to save their scalps. Pimco's top fund, the Total Return Fund, managed a 4.8 percent return in 2008, a brutal year for most investments, and a 13.8 percent return in 2009. Pimco's ability to thrive in the crisis helped cement Gross's legend as a money manager -- and attract more money to manage.

But Williams alleges that the bad behavior continued right up until Pimco fired him in March of 2012, when he claims the company manipulated the price of a Pimco fund.

Williams claims he complained to management repeatedly, starting in 2008, only to have his pay cut and suffer verbal abuse. When he finally told federal authorities about what was going on, in February 2012, he was fired within just a few weeks, he claims.

This is not the first legal pickle for Pimco: It agreed in 2010 to pay $92 million to settle a class-action lawsuit accusing it of manipulating the market for Treasury bond futures. The firm denied any wrongdoing.

Fittingly, news of the lawsuit comes on the one-year anniversary of The New York Times op-ed by ex-Goldman Sachs employee Greg Smith, who claimed that the firm regularly worked against the interests of its clients -- allegations Goldman denies.

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