As part of Pimco’s calculus in deciding its next move in a government probe, the asset manager will have to determine whether it wants the additional publicity of a regulatory fight after what has already been a turbulent year.

The Wells notice sent to Pimco by the Securities and Exchange Commission over how it valued certain securities and whether it misled investors suggests the regulator is preparing to bring a civil action against the company.

Although Pimco said on Monday it believes its conduct was “appropriate,” a fight against the SEC allegations could lead to a protracted battle that could end in tougher penalties.

But the asset manager, which is already struggling with outflows, may not want to deal with the stigma of a settlement, especially because the SEC could push Pimco to admit any wrongdoing.

The stakes could also be raised if the SEC decides to name former Pimco chief investment officer Bill Gross or other executives as focuses of the probe. Mr Gross, who left Pimco last year after a staff rebellion, was at the company at the time covered by the probe and has been interviewed by the SEC.

The SEC investigation focuses on purchases and valuations of mortgage-backed securities made by Pimco’s popular exchange traded fund between February and June 2012. The regulator is examining whether Pimco misled investors by giving an inaccurate picture of the Total Return ETF’s performance.

The SEC has been cracking down on ETFs, hitting investment management company F-Squared Investments with a $35m fine in December. F-Squared also had to admit wrongdoing to settle the allegations it defrauded investors through the way it advertised the performance of an ETF-related product.

The SEC has also pushed for more transparency in ETFs in other ways. Last year, it rejected an application from BlackRock to create a new kind of ETF, saying investors would not receive enough information about the ETF’s holdings.

In June, the SEC also asked for public comment as part of its review of new or complex exchange-traded products, including ETFs. The agency is seeking information on how the products are priced, sold and traded.

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