Aug. 19 (Bloomberg) -- Pacific Investment Management Co., manager of the world's biggest bond fund, was sued by an investor alleging the firm manipulated the price of June 10-year Treasury futures contracts on the Chicago Board of Trade.

Raymond Chiu claims Pimco violated the Commodity Exchange Act through ``manipulative conduct'' that created ``artificially high prices'' in the futures market to its benefit. The suit, filed on Aug. 16 in U.S. District Court in Chicago, seeks class- action status.

``We strongly believe the complaint is without merit and we intend to vigorously defend ourselves,'' said Mark Porterfield, a spokesman for Newport Beach, California-based Pimco. The firm, whose chief investment officer is Bill Gross, manages more than $400 billion.

Gross last week gave an ``unequivocal'' denial to financial news network CNBC that his firm was involved in a shortage, or ``squeeze'' of Treasuries related to the contract on which Chiu based his complaint. Futures are agreements to buy or sell securities at a set price and time.

Chiu said Pimco owned about $10 billion of contracts and ``billions of dollars worth'' of the most-sought after notes that could be used to fulfill the futures contract.

U.S. Securities and Exchange Commission filings show that on June 30 Pimco funds held more than $11 billion, or about 45 percent, of the 4 7/8 percent February 2012 Treasury note, which was the so-called cheapest to deliver.

It is illegal to manipulate prices in the futures market by attempting to corner supply of a deliverable security, according to the Commodity Exchange Act.

Ryan Long, one of Chiu's lawyers at Lovell, Stewart Halebian LLP, declined to comment. Calls to Chiu's lawyers at Miller Faucher and Cafferty LLP weren't returned. Christopher Lovell was the lead attorney in a 1998 suit alleging commodity trader Phibro Inc. manipulated the silver market, before Warren Buffett said he was the one buying up silver and Phibro was just his broker.

The case is Raymond Chiu v. Pacific Investment Management Company LLC, U.S. District Court for the Northern District of Illinois Eastern Division, 05C-4681.

To contact the reporter on this story: Al Yoon in New York at ayoon@bloomberg.net; Mark Tannenbaum in New York at mtannen@bloomberg.net

Last Updated: August 19, 2005 08:37 EDT