A shareholder in the PIMCO Total Return Fund filed a section 36(b) lawsuit against PIMCO in U.S. District Court for the Western District of Washington on December 31, 2014. The complaint alleges that PIMCO charges excessive advisory fees, when compared to the rates it charges private clients invested in essentially the same assets as the Total Return Fund. PIMCO also charges more in advisory and administrative fees than it charges to sub-advise a third-party mutual fund.
As an example, a private investor with $200 million invested in a private Total Return account would pay $593,750 in annual advisory fees, using the PIMCO fixed fee schedule. But an investor with $200 million in Class A shares of the Total Return Fund would pay $1.7 million in annual advisory fees.
PIMCO filed a motion to dismiss on March 6, 2015. The plaintiff filed an opposition brief and PIMCO filed a reply brief. The Court denied the PIMCO motion to dismiss on August 26, 2015.
In a separate decision on August 15, 2015, the Court ruled that the plaintiff could be awarded damages for activities occurring more than one year after the complaint was filed in this case and, thus, does not need to file "anniversary complaints" to preserve his rights in this action.
The case is currently in discovery. A dispute arose when the independent trustees redacted and withheld over 200 documents on the basis of attorney-client privilege. In a ruling issued on November 21, 2016, the Court accepted the plaintiff's argument that a "fiduciary exception" to the attorney-client privilege should apply in these circumstances. The PIMCO Total Return Fund is a trust and the independent trustees owe a fiduciary duty to the plaintiff and other shareholders. The attorney-client privilege should not apply to communications involved in managing the Fund.