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Rating:Canary Broker Takes the Stand Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, June 23, 2006

Canary Broker Takes the Stand

Reported by Marie Glancy

Stephen Treadway postponed a planned meeting with brokers for Edward Stern and Canary Capital Partners in 2002 and was a no-show when the lunch was rescheduled, the jury in Treadway's civil fraud trial heard Thursday. But e-mails show that through the first half of 2002, he was CC'd on several messages related to a market-timing deal that Ken Corba and John Cashwell of PEA Capital -- then PIMCO Equity Advisors -- had made with the brokers and Stern.

As lawyers for the Securities and Exchange Commission tried to show Treadway had full knowledge of the Canary arrangement from an early stage, Treadway's chief lawyer, Alan Levine, used his single cross-examination of the day to highlight Treadway's onetime "reputation" for opposing market timing, and the possibility that Stern's brokers deliberately plotted to go behind Treadway's back.

The day began with the continuation of a deposition by Treadway that SEC representatives began reading Wednesday. In the 2004 testimony, Treadway described how in early 2002, Corba told him of an “experiment” he wanted to undertake involving a Canary investment, but added, “In no way did Ken Corba at this meeting suggest that there was a time or a formula... only the potential.” Treadway testified that he never met Stern and received assurances from Corba that no harm would come to investors' returns as a result of the Stern arrangement. In an April 28, 2002 email, entered into the record, Treadway instructed his head of sales to come up with a more precise definition of the“four round trips” permitted Canary per month. This, he said, was prompted by the “level of trading being higher than what we had anticipated.” But he said he never considered discussing the Stern issue with the firm's board of directors.

The deposition also included lengthy clarifications of PIMCO's subsidiaries and structure. Judge Victor Marrero thanked the jury for their patience in what he termed a particularly “tedious” part of the trial, but proceedings swiftly became more engrossing when former Brean Murray broker Ryan Goldberg, only 30 years old today, was called to the stand to describe his dealings with PIMCO and PEA Capital in 2001 and 2002.

Questioned by attorneys for the government, Goldberg – who has been the subject of long-term investigations by the SEC and Eliot Spitzer's office, and appeared subdued -- said he spoke to Treadway around February 2002 to arrange a meeting between himself, his partner, Michael Grady, Stern, Corba, and Treadway. Treadway cancelled this meeting because of a family emergency, he said. In March 2002, the meeting was held at the Raquet Club in New York City, but Treadway was not present, for reasons Goldberg said he did not know.

He didn't ultimately meet Treadway until autumn 2002, he said, after a phone call in which Treadway said PIMCO was not interested in continuing the arrangement. However, said Goldberg, Treadway said Canary could continue with three trades per month through the end of 2002.

Levine, confident and dramatic, suggested Goldberg said whatever was necessary to get Stern access to PIMCO trading, which Goldberg denied. Goldberg did admit, however, that he had no idea what Corba and Cashwell actually told Treadway, and that as early as November 2001, he'd known Treadway had a reputation for being “vehemently opposed to market timing.”

Like Michael Grady on Wednesday, Goldberg told the court he was not aware that PEA Capital operated separately from PIMCO, but Levine suggested that Everett Alcenat of Circle Trust introduced the brokers to Cashwell with the specific intention of going through PEA instead of Treadway.

Finally, Levine charged that Goldberg fabricated the autumn 2002 telephone conversation between himself, Treadway and their associates in which Treadway granted permission for 3 trades a month through 2002. Goldberg denied this. After viewing a deposition he previously made, he agreed that Treadway had ordered a stop to market timing across all the funds. Canary then negotiated continued trading of the Opportunity Fund with Cashwell and the fund's portfolio manager, Michael Gaffney, following the autumn 2002 meeting with Treadway. Goldberg said he “wouldn't know” if this was done behind Treadway's back.

The SEC then called Ken Corba to the stand. “Shortly after” his initial meeting with Stern and the brokers, he said, “I ran it by Steve Treadway.” Asked how Treadway responded, Corba said he didn't recall, but that afterwards, he told Cashwell “to tell these guys that we would consider it on a trial basis.”

He said he thought he'd had another conversation with Treadway between this initial one and February 2002, when Canary's trading began. Again, he recalled primarily the conclusion reached; again, this conclusion was to allow the Stern deal on a trial basis, monitoring funds for disruption. Corba also said he reported to Treadway about the Racquet Club lunch with Stern and the brokers, but questioned on Treadway's response, he replied, “I don't recall anything he said.”

SEC lawyers then showed Corba several emails from the first half of 2002, relating to the heavy trading of PIMCO funds by Canary and the manual intervention required as shares were redeemed before orders for them had settled. Treadway was CC'd on these emails. Asked how he responded to these messages, Corba said he “took note” of them.

The trial is set to continue through next week. 

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