Kenny v. PIMCO LLC



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.  

  • Court Applies a Fiduciary Exception in Discovery
    On November 21, 2016, the Court ruled in a discovery dispute between the parties. The independent trustees redacted and withheld more than 200 documents on the basis of the attorney-client privilege. After briefing by both parties, the Court determined that a fiduciary exception to the privilege should apply to these documents, as the trustees are fiduciaries to the beneficiaries of the PIMCO Total Return trust.
  • Court Denies Motion to Dismiss
    On August 26, 2015, the District Court denied the PIMCO motion to dismiss the case. The Court determined that the plaintiff has successfully pled several of the Gartenberg factors, including comparative fee structures, economies of scale, and the nature and quality of services,
  • Court Rules on Temporal Limitations Regarding Damages
    On August 15, 2016, the District Court acknowledged that the Investment Company Act prohibits damages from being awarded for activities prior to one year before a complaint is filed. However, the Court determined that the Investment Company Act permits the plaintiff to recover damages occurring after the complaint is filed and, thus, the plaintiff does not have to file "anniversary complaints" each year to preserve his right to pursue damages incurred after the filing of this action.
  • PIMCO Files Reply Brief
    On May 20, 2015, PIMCO filed a reply brief stating that the plaintiff's "conclusory allegations" do not establish that advisory and other fees are beyond what could have been bargained for at arm's length.
  • Plaintiff Files Response to Motion to Dismiss
    The plaintiff filed a response to the motion to dismiss on April 20, 2015. The plaintiff alleges that in 2013, PIMCO charged the Total Return Fund $647 million more in advisory fees than a similar mutual fund that was sub-advised by the same investment manager. PIMCO's compensation is not reasonably related to the services being provided and could not have been the product of arm's length bargaining.
  • PIMCO Files Motion to Dismiss
    On March 6, 2015, PIMCO filed a motion to dismiss the case. PIMCO alleges that the plaintiff has failed to state a plausible claim for excessive advisory and administrative fees under section 36(b) of the Investment Company Act.
  • Total Return Shareholder Files 36(b) Case Against PIMCO
    On Decmber 31, 2014, a shareholder in the PIMCO Total Return Fund filed an excessive fee lawsuit in U.S. District Court for the Western District of Washington. The complaint alleges that PIMCO charges excessive advisory fees to the Total Return Fund, when compared to what private clients are charged for investing in essentially the same assets.

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.  

Document Title: 
Court Applies a Fiduciary Exception in Discovery
Document Desc: 
On November 21, 2016, the Court ruled in a discovery dispute between the parties. The independent trustees redacted and withheld more than 200 documents on the basis of the attorney-client privilege. After briefing by both parties, the Court determined that a fiduciary exception to the privilege should apply to these documents, as the trustees are fiduciaries to the beneficiaries of the PIMCO Total Return trust.
Document Title: 
Court Denies Motion to Dismiss
Document Desc: 
On August 26, 2015, the District Court denied the PIMCO motion to dismiss the case. The Court determined that the plaintiff has successfully pled several of the Gartenberg factors, including comparative fee structures, economies of scale, and the nature and quality of services,
Document Title: 
Court Rules on Temporal Limitations Regarding Damages
Document Desc: 
On August 15, 2016, the District Court acknowledged that the Investment Company Act prohibits damages from being awarded for activities prior to one year before a complaint is filed. However, the Court determined that the Investment Company Act permits the plaintiff to recover damages occurring after the complaint is filed and, thus, the plaintiff does not have to file "anniversary complaints" each year to preserve his right to pursue damages incurred after the filing of this action.
Document Title: 
PIMCO Files Reply Brief
Document Desc: 
On May 20, 2015, PIMCO filed a reply brief stating that the plaintiff's "conclusory allegations" do not establish that advisory and other fees are beyond what could have been bargained for at arm's length.
Document Title: 
Plaintiff Files Response to Motion to Dismiss
Document Desc: 
The plaintiff filed a response to the motion to dismiss on April 20, 2015. The plaintiff alleges that in 2013, PIMCO charged the Total Return Fund $647 million more in advisory fees than a similar mutual fund that was sub-advised by the same investment manager. PIMCO's compensation is not reasonably related to the services being provided and could not have been the product of arm's length bargaining.
Document Title: 
PIMCO Files Motion to Dismiss
Document Desc: 
On March 6, 2015, PIMCO filed a motion to dismiss the case. PIMCO alleges that the plaintiff has failed to state a plausible claim for excessive advisory and administrative fees under section 36(b) of the Investment Company Act.
Document Title: 
Total Return Shareholder Files 36(b) Case Against PIMCO
Document Desc: 
On Decmber 31, 2014, a shareholder in the PIMCO Total Return Fund filed an excessive fee lawsuit in U.S. District Court for the Western District of Washington. The complaint alleges that PIMCO charges excessive advisory fees to the Total Return Fund, when compared to what private clients are charged for investing in essentially the same assets.