The jump into the breach by the high-profile Mr. Gross marks another chapter in the industry's evolving crisis management story. Whether it has a happy ending will depend on how the facts pan out, and Mr. Gross' intervention certainly raises the stakes for PIMCO should the facts prove unfriendly, said Howard Schneider, the president of Practical Perspectives, Boston, a consultant to the money management industry.
Other industry heavyweights have learned that lesson the hard way.
When regulators began targeting Putnam Investments Inc. last September, Lawrence Lasser, the chief executive who engineered Putnam's explosive growth for two decades, assured clients in a letter that Putnam hadn't lost its fiduciary way. When the facts proved otherwise, Mr. Lasser quickly lost his job.
Such high-level departures are proof that the industry is struggling to acquire a new skill set. After decades without a major scandal, public relations clearly isn't a core competency for most money managers, said Paul Schaeffer, managing director in the San Francisco manager support division of SEI Investments, Oaks, Pa.
Of course, one of the hottest topics for money managers today is the best way to respond to a government lawsuit. According to one school of thought, "the more high profile you are, the more you just anger the regulators," said a consultant who asked not to be named.
Asked about Mr. Gross' public response to his company's mention in the lawsuit, Franklin L. Widmann, chief of the New Jersey Bureau of Securities, declined to comment.
After its initial flurry of publicity, there are signs PIMCO has become more cautious. Mr. Gross wasn't available for this story, nor were other PIMCO officials.
New Jersey's 44-page complaint doesn't focus on the house that Mr. Gross built. Rather, it devotes 18 pages to its case against PEA Capital, followed by five pages for PIMCO Advisors Distributors.
Those companies have appropriated the respected PIMCO name for branding purposes, in the words of Morningstar Inc., Chicago. To PIMCO's chagrin, when New Jersey announced its charges, many plan sponsors and consultants conceded they weren't sure what the group's organizational chart looked like, and what the connections were among the different units.
Only toward the end of the complaint did regulators allege that PIMCO executives reached agreements allowing Canary or its agents to exceed the six "round trips" per year with the PIMCO High Yield Fund and the Real Return Fund that their prospectuses cite as the tripwire for possible intervention by PIMCO.
The six-page section ends by detailing scores of "transactions" by various Canary-related accounts.
In his public response, Mr. Gross said "to the best of our knowledge" PIMCO had never made any arrangements involving "sticky funds," and the Canary trading didn't violate the company's prospectuses.
Consultants and analysts say the PIMCO officials they've talked to explained that the "transaction" figures cited by New Jersey cover a number of legs involved in selling and then buying different funds. There could be up to five to seven "transactions" per round trip, they say. New Jersey's Mr. Widmann said dividing those transaction numbers by two would yield the approximate number of round trips.