Washington, D.C.,, 2006 – The Securities and Exchange Commission announced that a federal court jury today found Stephen J. Treadway, the former chairman of the board of trustees of the PIMCO equity funds, liable for defrauding PIMCO equity mutual fund investors through an undisclosed market timing arrangement with Canary Capital Partners LLC. From February 2002 to April 2003, Canary Capital engaged in approximately 108 round-trip exchanges in an aggregate amount of over $4 billion in several PIMCO funds pursuant to its special market timing arrangement. Treadway was also CEO of PIMCO Advisors Fund Management LLC and PIMCO Advisors Distributors LLC.
The jury’s verdicts were returned after an eight day trial in Manhattan before the Honorable Victor Marrero, United States District Judge for the Southern District of New York.
Randall R. Lee, Regional Director of the SEC’s Pacific Regional Office in Los Angeles, said, “Investing in a mutual fund is an act of trust in those who manage and invest your money. The evidence in this case showed – and the jury agreed — that defendant Treadway betrayed that trust and defrauded investors by allowing a single wealthy investor to engage in a trading strategy that was denied to ordinary investors.”
The Commission’s complaint alleged that Treadway approved an arrangement in January 2002 in which the PIMCO funds’ advisers provided “timing capacity” in their mutual funds to Canary Capital in return for long-term investments in a mutual fund and a hedge fund from which PEA Capital earned management fees. The complaint further alleged that Treadway failed to disclose the special Canary arrangement to the board of trustees of the PIMCO funds until September 2003.
The jury found Treadway liable for violations (or aiding and abetting violations) of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, Section 34(b) of the Investment Company Act of 1940, and Section 36(a) of the Investment Company Act.
Previously, the Commission brought and settled charges against the PIMCO equity funds’ adviser, sub-adviser, distributor, and the former CEO of the sub-adviser.