Pacific Investment Management Company (Pimco) on Monday said it could be sued by the Securities and Exchange Commission for allegedly artificially boosting returns from its trading of certain mortgage bonds within its Pimco Total Return Active ETF, the Wall Street Journal reported.

Pimco received a “Wells” notice from the SEC concerning the exchange traded fund, which means the agency’s staff intends to recommend a civil action against the firm related to its investigation, the WSJ said. The notice isn’t a formal allegation of wrongdoing and won’t necessarily lead to an enforcement action.

The SEC is examining how Pimco valued smaller-size positions in nonagency mortgage-backed securities purchased by the ETF between the fund’s launch on Feb. 29, 2012, and June 30, 2012. The agency is looking at the fund’s performance disclosures for that period, and at Pimco’s compliance procedures.

In the press release sent to the WSJ, Pimco wrote that the Wells process “provides us with our opportunity to demonstrate to the SEC staff why we believe our conduct was appropriate, in keeping with industry standards and that no action should be taken. We will continue to engage with the SEC and we are confident that this matter will not affect our ability to serve our clients.”

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