SEC v. PIMCO ADVISORS FUND MANAGEMENT LLC; PEA CAPITAL LLC; PIMCO ADVISORS DISTRIBUTORS LLC; STEPHEN J. TREADWAY; and KENNETH W. CORBA, Southern District of New York — Complaint

Nicolas Morgan
Michele Wein Layne
Lorraine B. Echavarria
Adam D. Schneir
Attorneys for Plaintiff
Securities and Exchange Commission
Randall R. Lee, Regional Director
Sandra J. Harris, Associate Regional Director
5670 Wilshire Boulevard, 11
th
 Floor
Los Angeles, California 90036-3648
Telephone:(323) 965-3998
Facsimile:(323) 965-3908
LOCAL COUNSEL
:
Dorothy Heyl (DH-1601)
Securities and Exchange Commission
Northeast Regional Office
233 Broadway
New York, New York 10279
(646) 428-1758 
(646) 428-1973 (facsimile)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
PIMCO ADVISORS FUND
MANAGEMENT LLC, PEA
CAPITAL LLC f/k/a PIMCO EQUITY
ADVISORS LLC, PIMCO
ADVISORS DISTRIBUTORS LLC,
STEPHEN J. TREADWAY, AND
KENNETH W. CORBA, 
Defendant(s).
04 Civ.  3464 (VM)
COMPLAINT

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Plaintiff Securities and Exchange Commission ("Commission") alleges as
follows:
JURISDICTION AND VENUE
1.This Court has jurisdiction over this action pursuant to Sections
20(b), 20(d)(1) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15
U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a), Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27
of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d)(1),
78u(d)(3)(A), 78u(e) & 78aa, Sections 209(e)(1) and 214 of the Investment
Advisers Act of 1940 ("Advisers Act"), 15 U.S.C. §§ 80b-9(e)(1) & 80b-14, and
Sections 42(d), 42(e)(1) and 44 of the Investment Company Act of 1940
("Investment Company Act"), 15 U.S.C. §§ 80a-41(d), 80a-41(e)(1) & 80a-43. 
Defendants have, directly or indirectly, made use of the means or instrumentalities
of interstate commerce, of the mails, or of the facilities of a national securities
exchange in connection with the transactions, acts, practices and courses of
business alleged in this Complaint.
2.Venue is proper in this district pursuant to Section 22(a) of the
Securities Act, 15 U.S.C. § 77v(a), Section 27 of the Exchange Act, 15 U.S.C. §
78aa, Section 214 of the Advisers Act, 15 U.S.C. § 80b-14, and Section 44 of the
Investment Company Act, 15 U.S.C. § 80a-43, because certain of the transactions,
acts, practices and courses of conduct constituting violations of the federal
securities laws occurred within this district.
SUMMARY
3.This action concerns a fraud perpetrated by defendants on
unsuspecting investors in several mutual funds that are part of the PIMCO Funds:
Multi-Manager Series ("PIMCO Funds" or the "Funds").  The defendants, parties
entrusted with advising and distributing the Funds, represented to investors that
the Funds would limit a practice known as market timing (the frequent buying and
selling of shares of the same mutual fund).  Consistent with this policy, the Funds

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actively policed market timing activities and prevented some Fund shareholders
from engaging in it.  However, without any disclosure to Fund shareholders (and
contrary to representations), the defendants orchestrated a secret arrangement with
one preferred client to allow market timing in amounts exceeding $4 billion in
trading.
4.From February 2002 to April 2003, the PIMCO Funds' advisers,
PIMCO Advisers Fund Management LLC ("PAFM") and PEA Capital LLC
("PEA"), and the Funds' distributing broker-dealer, PIMCO Advisors Distributors
LLC ("PAD") (collectively, "PIMCO Entities"), provided "timing capacity" in
their mutual funds to a market timer, Canary Capital Partners LLC ("Canary"), in
return for Canary's investment of "sticky assets" in a mutual fund and a hedge fund
from which PAFM and PEA earned management fees.  "Sticky assets" are long-
term investments made in exchange for permitting market timing in mutual funds. 
The prospectuses for the mutual funds failed to disclose that an agreement had
been made to permit timing in the funds in exchange for sticky assets.  In addition,
the prospectuses gave the misleading impression that the mutual funds
discouraged timing.
5.At the height of the agreement, Canary used over $60 million in
timing capacity in several different mutual funds and invested $27 million in
sticky assets into a mutual fund and a hedge fund.  Finally, PEA improperly failed
to have written policies designed to prevent the misuse of the Funds' nonpublic
portfolio holdings, and, in fact, PEA disclosed those holdings to the broker-dealer
that executed Canary's trades.
6.Stephen J. Treadway, the CEO of PAFM and PAD, as well as the
Chairman of the Board of Trustees for the PIMCO Funds:  Multi-Manager Series,
approved the market timing arrangement in approximately January 2002. 
Treadway, however, did not disclose his knowledge of the arrangement to the
Board of Trustees until approximately September 2003.

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7.Kenneth W. Corba, PEA's former Chief Executive Officer, negotiated
and approved the timing and sticky asset arrangement with Canary.  He also
managed the PIMCO Growth Fund, which provided $30 million in market timing
capacity to Canary, and the PIMCO Select Growth Fund, which received $25
million in sticky assets from Canary.
8.Defendants permitted the arrangement with Canary despite their
awareness of the potential harmful effects of timing on mutual funds and an ability
to detect and prevent timing.
9.Through this conduct, PAFM and PEA violated Section 17(a) of the
Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §
78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, Sections 204A, 206(1),
and 206(2) of the Advisers Act ("Advisers Act"), 15 U.S.C. §§ 80b-4a, 80b-6(1),
and 80b-6(2), and Sections 17(d) and 34(b) of the Investment Company Act
("Investment Company Act"), 15 U.S.C. §§ 80a-17(d) and 80a-33(b), and Rule
17d-1 thereunder, 17 C.F.R. § 270.17d-1, and breached their fiduciary duties
under Section 36(a) of the Investment Company Act, 80a-35(a).
10.Through this conduct, PAD violated Section 17(a) of the Securities
Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section
17(d) of the Investment Company Act and Rule 17d-1 thereunder, aided and
abetted violations of Sections 206(1) and 206(2) of the Advisers Act, and
breached its fiduciary duties under Section 36(a) of the Investment Company Act.
11.Through this conduct, Treadway and Corba violated Section 17(a) of
the Securities Act, violated, or aided and abetted violations of, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder, violated Section 34(b) of the
Investment Company Act, aided and abetted violations of Sections 206(1) and
206(2) of the Advisers Act, and breached their fiduciary duties under Section
36(a) of the Investment Company Act.

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THE DEFENDANTS
12.PIMCO Advisors Fund Management LLC ("PAFM"), a Delaware
limited liability company located in New York, New York, is an investment
adviser registered with the Commission under the Advisers Act.  It is an
investment adviser and administrator for the PIMCO Funds: Multi-Manager Series
(the "PIMCO Funds" or the "Funds"), a registered investment company comprised
of 45 separate investment series or mutual funds.  PAFM provides investment
supervisory services to the PIMCO Funds, and for these services, the Funds pay
PAFM an annual advisory fee consisting of a percentage of average daily net
assets held by the Funds.
13.PEA Capital LLC, f/k/a PIMCO Equity Advisors LLC ("PEA"), a
Delaware limited liability company located in New York, New York, is an
investment adviser registered with the Commission under the Advisers Act.  It is
the investment sub-adviser for the PEA Growth Fund, PEA Opportunity Fund,
PEA Target Fund, PEA Innovation Fund, and several other funds, all of which
were part of the PIMCO Funds.  In 2002, PEA also served as the sub-adviser for
the Select Growth Fund.  As the sub-adviser, PEA has full investment discretion
and makes all determinations with respect to the investment of a fund's assets
subject to the general supervision of PAFM and the Board of Trustees of the
PIMCO Funds.  On February 6, 2004, PEA filed a Form ADV with the
Commission stating that it had changed its name from PIMCO Equity Advisors
LLC to PEA Capital LLC.  As of December 31, 2003, accounts managed by PEA
had combined assets of approximately $11.3 billion.
14.PIMCO Advisors Distributors LLC ("PAD"), a Delaware limited
liability company located in Stamford, Connecticut, is a broker-dealer registered
with the Commission under the Exchange Act.  PAD serves as the distributor for
the PIMCO Funds.  PAD also employed individuals responsible for monitoring
trading activity to prevent or limit market timing in the PIMCO Funds (the "timing

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police").
15.Stephen J. Treadway ("Treadway"), age 56, a resident of New York,
New York, is the Chief Executive Officer and a Managing Director of PAFM, the
Chief Executive Officer and a Managing Director of PAD, and the Chairman of
the Board of Trustees for the PIMCO Funds.
16.Kenneth W. Corba ("Corba"), age 51, a resident of Greenwich,
Connecticut, was the Chief Executive Officer, Chief Investment Officer, and a
Managing Director of PEA.  He was also the portfolio manager for the PEA
Growth and Select Growth Funds.  Corba joined PEA in 1999 and resigned from
PEA on April 13, 2004.
RELEVANT ENTITY
17.Canary Capital Partners, LLC was, at all relevant times, a domestic
hedge fund, and Canary Capital Partners, Ltd. was, at all relevant times, an
offshore hedge fund domiciled in Bermuda, managed by an investment adviser,
Canary Investment Management, LLC, and its principal, Edward J. Stern
(collectively "Canary").  African Grey Capital Associates LLC was an entity
formed by Stern and affiliated with the various Canary entities.  Canary has offices
in Secaucus, New Jersey and New York, New York.
THE FRAUDULENT SCHEME
A.The Timing Agreement with Canary
18.From 2001 to the present, PAFM and PEA collectively served as the
adviser and sub-adviser for certain mutual funds offered by the PIMCO Funds:
Multi-Manager Series.  These funds included the Growth, Target, Opportunity,
Innovation, Select Growth, and Value Funds, among others.  In or around October
2002, the Select Growth Fund was merged into the Growth Fund.  After this time,
the Select Growth Fund ceased to exist.
19.In October 2001, representatives of a registered broker-dealer (the
"broker representatives") were introduced to PEA by a third party trust company. 

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The representatives sought market timing capacity in the PIMCO family of funds
for their clients.
20.In or around early November 2001, the broker representatives met
with Corba and PEA's former Senior Vice President of Institutional Marketing.  At
this meeting, which occurred in Corba's office, the broker representatives stated
their interest in arranging for approximately $100 million in trading capacity in the
PIMCO family of funds at a rate of three to four round-trip exchanges per month. 
The broker representatives also specified that they only wanted capacity in funds
where their client's investment would consist of 3% or less of the fund value.  In
exchange for this ability to market time, the broker representatives proposed a
long-term investment consisting of 25% of the value of trading capacity into one
of the PIMCO Entities' other investment products.
21.After the meeting with the broker representatives, Corba met with
PEA's managing directors and portfolio managers regarding the proposed
arrangement.  At this meeting, Corba indicated that PEA was entering a market
timing relationship involving PEA's growth-type funds (i.e., the Growth, Target,
and Innovation Funds).
22.After the meeting with the managing directors and portfolio
managers, Corba instructed PEA's former Senior Vice President of Institutional
Marketing to work out an agreement that permitted trading capacity in the PIMCO
Growth, Target, and Innovation Funds.  The terms of the agreement were that
Canary would invest $100 million in the Growth, Target, and Innovation Funds;
the assets could be traded in up to four round-trips per month; the amount of
money invested in each fund by Canary could not exceed 3% of the fund's assets;
and Canary agreed to make a long-term investment representing 25% of the assets
under management into the PIMCO Select Growth Fund.
23.In or about January 2002, Corba met with Treadway to discuss the
proposed market timing relationship.  At this meeting, Corba told Treadway that a

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member of a very wealthy and reputable family, Edward Stern, was interested in
the PIMCO Funds and in establishing a long-term relationship with PEA.  Corba
also told Treadway at this meeting that he wanted to get Stern to invest into the
Select Growth Fund.  Corba further told Treadway that Stern was interested in
active trading that could potentially run afoul of the PIMCO Entities' market
timing policies.  In describing the proposed arrangement to Treadway, Corba
stated that the PIMCO Entities would be informed about Stern's trades and that
Stern would not invest more than 3% into any one of the PEA-managed funds at
any one time.
24.Corba needed Treadway's approval to proceed with the Stern
relationship because it involved a significant amount of money and the
accommodation of market timing.  Corba also needed Treadway's approval
because Treadway was the Chairman of the PIMCO Funds and the PAD "timing
police" ultimately reported to Treadway.  At the meeting with Corba, Treadway
approved the relationship with Stern.
25.In February 2002, Canary executed its first round-trip exchange in the
PIMCO Innovation Fund.  After the execution of this transaction, however, the
portfolio manager for the PIMCO Innovation Fund decided that the Canary timing
activity was too disruptive and forbade further trading by Canary in the fund.
26.On or about March 5, 2002, Corba and PEA's former Senior Vice
President of Institutional Marketing met with Stern and the broker representatives
at The Racquet Club in New York City and discussed, among other things, the
market timing agreement between PEA and Canary.  They discussed that the
agreement permitted four round-trip exchanges in each fund per month and
included a 25% long-term investment in the PIMCO Select Growth Fund.  In
addition, Stern expressed an interest in obtaining additional capacity in other
PIMCO Funds and investing in a PIMCO hedge fund.  Corba told Stern about the
PIMCO Equity Advisors Horizon Fund LP (the "Horizon Fund") and, specifically,

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that it had a good performance record.  The Horizon Fund was a hedge fund
focused on small cap growth with assets of $31.1 million as of February 28, 2003.
27.Throughout March 2002, Stern continued to express an interest in
obtaining additional capacity in other PIMCO Funds.  Corba knew that Stern was
disappointed about losing capacity in the Innovation Fund.  Corba, therefore, told
PEA's former Senior Vice President of Institutional Marketing that Canary could
consider the Opportunity Fund if they were interested but that because it was a
much smaller fund the capacity level would not be the same as what they had with
the Innovation Fund.
28.On or about March 22, 2002, Stern met with the portfolio manager for
the Horizon and Opportunity Funds and PEA's former Senior Vice President of
Institutional Marketing to learn about the Horizon Fund.  On March 25, 2002, the
former Senior Vice President of Institutional Marketing informed Corba that
Canary still wanted to invest in the Innovation and Opportunity Funds as part of
the deal.  Corba knew that part of the long term investment in the Horizon Fund
would be to gain further access to the funds including the Opportunity Fund.
29.Soon after the March 22, 2002 meeting with Stern, Canary invested
$2 million in the Horizon Fund on a long-term basis and received $5 million in
trading capacity in the Opportunity Fund.
30.In addition, Canary obtained a waiver of the lock-up period for
investments into the Horizon Fund in the event the market timing relationship with
Canary and PEA ended.
31.PEA received 1% of total assets under management and a
performance fee consisting of 20% of the net profits generated by the fund in
annual fees from the Horizon Fund.  Likewise, PAFM and PEA collectively
received an advisory fee of 0.65% of net assets under management for the
Opportunity Fund.

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B.Canary's Trading in the PIMCO Funds
32.From on or around February 1, 2002 through February 8, 2002,
Canary invested $25 million in sticky or long-term assets into the PIMCO Select
Growth Fund, which almost doubled the assets of that fund.  Between February 4
and February 7, 2002, Canary also placed approximately $60 million into a
combination of fixed-income PIMCO funds for timing purposes.  On or around
February 8, 2002, Canary began its timing activities by purchasing approximately
$24 million in both the PIMCO Target and Innovation Funds.  On February 12,
2002, Corba and Treadway, among others, received an e-mail notification from a
member of PAD's "timing police" regarding the broker representative's initial
transactions on behalf of the Canary accounts.
33.From on or around February 8, 2002 through April 3, 2002, Canary
traded extensively into and out of the PIMCO Target Fund from one of the
following funds:  PIMCO Total Return Fund, PIMCO Real Return Fund, PIMCO
Short-Term Fund, or the PIMCO Low Duration Fund (the "fixed-income PIMCO
funds") or the PIMCO money market.  The fixed-income PIMCO funds were not
parties to the special Canary arrangement.  In fact, in March 2002, the
fixed-income PIMCO funds requested that this trading activity cease.
34.From on or around February 8, 2002 through February 21, 2002,
Canary also traded in the PIMCO Innovation Fund.  The Innovation Fund had an
investment strategy, however, that was negatively affected by the extreme inflow
and outflow of cash.  Thus, after the first round-trip exchange allowed by the
Canary arrangement, the portfolio manager for Innovation determined that the
market timing activity was disruptive to the fund.
35.As a result of being forced to stop its activities in the Innovation
Fund, Canary reduced its total timing capacity at PIMCO Funds from the
originally promised $100 million to approximately $60 million.  The original
agreement linked the amount of money under management as sticky assets to the

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volume of timing capacity.  On or around April 12, 2002, Canary lowered its
"sticky asset" investment in the PIMCO Select Growth Fund from $25 million to
$20 million to reflect the lower timing capacity Canary received in the PIMCO
Funds.  On or around this same date, the broker representatives notified Corba and
others about the $5 million redemption from the Select Growth Fund.  Canary
began its timing activities in the PIMCO Growth Fund on or around April 11,
2002.
36.Canary timed the Growth and Target Funds from April 2002 until
November 2002.  Throughout this period of time, the broker representatives
e-mailed Corba and others trade notifications for the purchases and redemptions of
the Funds.  These notifications demonstrated the frequent trading activities in the
Canary accounts.
37.From April 2002 through November 2002, Canary made
approximately 28 round-trip exchanges in the Growth Fund.  The overall dollar
volume of these exchanges was nearly $1.8 billion.  From February 2002 through
November 2002, Canary made approximately 40 round-trip exchanges in the
Target Fund.  The overall dollar volume of these exchanges was over $2 billion.  
38.Canary also invested $2 million in sticky assets into the Horizon Fund
on or around April 1, 2002.  Canary then placed $5 million in the Opportunity
Fund on or around April 11, 2002, and market timed that account until on or
around April 3, 2003.  From April 2002 through April 2003, Canary made
approximately 40 round-trip exchanges in the Opportunity Fund.  The overall
dollar volume of these exchanges was approximately $371 million.
C.The PIMCO Funds' Disclosures
39.From 2001 to 2003, the prospectus for the PIMCO Funds, which each
of the defendants had knowledge of, stated that a pattern of exchanges
characteristic of market timing strategies may be deemed detrimental to the fund
and limited the number of round-trip exchanges available to investors. 

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Specifically, in the November 2001 and February 2002 prospectuses, the PIMCO
Funds made the following disclosure regarding market timing:
The Trust reserves the right to refuse exchange
purchases, if, in the judgment of PIMCO Advisors, the
purchase would adversely affect a Fund and its
shareholders.  In particular, a pattern of exchanges
characteristic of "market-timing" strategies may be
deemed by PIMCO Advisors to be detrimental to the
Trust or a particular Fund.  Currently, the Trust limits the
number of "round trip" exchanges an investor may make. 
An investor makes a "round trip" exchange when the
investor purchases shares of a particular Fund,
subsequently exchanges those shares for shares of a
different PIMCO Fund and then exchanges back into the
originally purchased Fund.  The Trust has the right to
refuse any exchange for any investor who completes (by
making the exchange back into the shares of the
originally purchased Fund) more than six round trip
exchanges in any twelve-month period.  Although the
Trust has no current intention of terminating or
modifying the exchange privilege other than as set forth
in the preceding sentence, it reserves the right to do so at
any time.
From November 2001 through September 2003, there were only minor changes to
this language.  The PIMCO Funds' Statements of Additional Information and
Shareholders Guides also made similar disclosures concerning market timing.
40.These disclosures were false and misleading, and defendants knew
they were false and misleading as a result of the secret market timing arrangement
they entered into with Canary.  None of the prospectuses disclosed that selected
shareholders could make long-term investments in some PIMCO investment
vehicles in order to obtain the right to market time PIMCO mutual funds. 
Treadway signed the PIMCO Funds' registration statements that were filed with
the Commission.
41.PAD froze nearly 400 accounts in 2002 because of market timing or
frequent trading in those accounts.  From January 2003 through October 2003,
PAD sent 104 warning letters to registered representatives, prohibited 67
registered representatives from selling PIMCO Funds, and froze 317 accounts.

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42.In fact, in furtherance of the stated policy, PAD prevented some
shareholders from performing exchanges based on the policy articulated in the
prospectus.  PAD monitored the trading patterns in the PIMCO Funds and, in so
doing, was able to identify some market timers.  When PAD identified market
timers, it sent letters to them warning that they could not use PIMCO Funds to
execute market timing strategies.  Specifically, these letters stated that frequent
transactions violated prospectus policies and were detrimental to the Funds and
harmful to shareholders.  As a further measure, PAD instructed the transfer agent
for the PIMCO Funds to block or freeze trades in market timers' accounts.
43.PAD maintained a log listing broker-dealers and registered
representatives identified as market timers.  On the log, PAD identified the market
timer and the action taken to deter that entity from continuing to time the PIMCO
Funds, including whether a warning letter was sent, the account was frozen, or the
account was closed.
44.In at least one communication with a broker dealer, PAD interpreted
the prospectus disclosure as a strict prohibition against market timing.
45.Contrary to the disclosures in its prospectuses and to shareholders,
the PIMCO Entities allowed Canary to engage in a practice of market timing in
exchange for long-term investments in a PIMCO mutual fund and a hedge fund. 
Specifically, as described above, the PIMCO Entities allowed Canary to make
approximately 108 round-trip exchanges from February 2002 to April 2003
pursuant to Canary's special timing arrangement.
D.The Adverse Effects of Market Timing on the PIMCO Funds
46.In May 2002, PAFM advised the Board of Trustees for the PIMCO
Funds, including Treadway, of the adverse impact that market timers had on
mutual funds.  The negative impacts were threefold:  (1) increased trading and
brokerage costs; (2) disruption of portfolio management activities; and (3)
additional capital gains that increased shareholders' tax liabilities.  After receipt of

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this advice, the Board of Trustees imposed a redemption fee on short-term
exchanges in certain classes of fund shares to, among other things, reimburse the
shareholders for costs of market timing and create a disincentive for market timing
activity.  But the Board of Trustees did not impose a similar fee on the retail class
of shares used by Canary in its special arrangement.  These redemption fees
became effective on June 10, 2002.
47.At a June 20, 2002 Board of Trustees meeting, Treadway received
authority to impose redemption fees on the class of shares used by Canary (on a
temporary basis prior to the September board meeting) if he believed such action
was in the best interests of the shareholders.  However, these redemption fees were
not imposed on that class of shares until February 2004.
48.As discussed above, Treadway, the Chairman of the Board of
Trustees for the PIMCO Funds, had approved the market timing arrangement with
Canary prior to PAFM's advice to the Board of Trustees.  Treadway, however, did
not disclose the arrangement to the Board of Trustees during the time these
redemption fees were being considered.  In fact, Treadway did not disclose his
knowledge of the arrangement to the Board of Trustees until approximately
September 2003.
49.Moreover, the Canary trading was the type of market timing that PAD
prohibited for other investors because of potential detriment to the Funds.  In fact,
when Canary tried to market time through Cockatoo Capital -- a Canary entity
without a special arrangement -- PAD sent out a warning letter stating that the
frequency of transactions violated prospectus policies and was detrimental to the
fund and its shareholders.
E.Treadway and Corba Eventually Terminate the Canary Relationship
50.Both Treadway and Corba received warning signals concerning
Canary's trading activities soon after approving the Canary relationship.  On
March 25, 2002, PEA's former Senior Vice President of Institutional Marketing

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forwarded to Corba a March 10, 2002 e-mail exchange between Canary and the
former Senior Vice President of Institutional Marketing, which provided an early
indication to Corba that Canary's frequent trading activity was problematic and
raised various concerns at the fixed-income PIMCO funds.
51.On April 26, 2002, Corba, Treadway, and others received an e-mail
from a member of PAD's "timing police" stating that one of the Canary accounts
had already executed five round-trip exchanges in the Target Fund for the month
of April.  The e-mail further stated that the Canary accounts "tend[ed] to divide the
movement of shares (in or out of the fund[s]) across a couple of days thereby
increasing the number of individual transactions hitting the account[s]."  In
response to this e-mail, Treadway instructed a senior PAD officer to formulate a
"more precise and limiting definition of what constitutes 4 round trips."
52.On April 29, 2002, the same member of PAD's "timing police" sent
an e-mail to the broker representatives, Treadway, Corba, and others alerting them
that the rapid fire trading activity in the Canary accounts resulted in trade
settlement problems.
53.On May 17, 2002, Corba sent an e-mail to one of the broker
representatives, and others, characterizing Canary's trading as "the most
opportunistic but extreme form of market timing [he had] ever seen."
54.On May 23, 2002, Corba sent one of the broker representatives an
e-mail referring to "another one day transaction" by Canary.  On June 4 and 11,
2002, Corba sent one of the broker representatives additional e-mails further
complaining about Canary's frequent one-day round trip transactions.
55.Treadway and Corba discussed the market timing arrangement
approximately once per month.  Around late April or early May 2002, Treadway
told Corba that Canary's trading levels and volumes were higher than anticipated
and that the Canary accounts were more actively traded than Treadway expected. 
Corba agreed with Treadway.  Nevertheless, Treadway and Corba allowed Canary

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to continue market timing the PIMCO Funds for several more months.
56.In or around late August or early September 2002, Treadway and
Corba finally decided to terminate the Canary arrangement.  Despite that decision,
Canary was allowed to continue timing the Target and Growth Funds until
November 2002.  Indeed, Canary was allowed to time the Target and Growth
Funds until just after the Select Growth Fund merged with the Growth Fund in
October 2002.  Just prior to the merger of these two mutual funds, Canary
redeemed its sticky asset investment from the Select Growth Fund.  Canary
redeemed its shares in the Select Growth Fund on or around October 11, 2002, but
continued its timing activity until on or around November 21, 2002, at which point
all funds were withdrawn from the Target and Growth Funds.
57.Canary continued, however, to time the Opportunity Fund until on or
around April 3, 2003, and kept its sticky asset investment in the Horizon Fund
until on or around May 31, 2003.
F.The Disclosure of Nonpublic Portfolio Holdings
58.PAFM and PEA did not establish, maintain, or enforce written
policies and procedures designed to prevent disclosure of the PIMCO Funds'
nonpublic portfolio holdings.  PEA disclosed nonpublic portfolio holdings of the
Growth, Target, Opportunity, and Select Growth Funds to the broker
representatives.
59.The disclosure of the nonpublic holdings to the broker
representatives, some of which were forwarded to Canary, provided Canary and
possibly others the opportunity to trade in the securities held in the respective fund
portfolios.

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FIRST CLAIM FOR RELIEF
FRAUD IN THE OFFER OR SALE OF SECURITIES
Violations of Section 17(a) of the Securities Act
(Against All Defendants)
60.The Commission realleges and incorporates by reference ¶¶ 1 through
59 above.
61.Defendants, and each of them, by engaging in the conduct described
above, directly or indirectly, in the offer or sale of securities by the use of means
or instruments of transportation or communication in interstate commerce or by
use of the mails:
a.with scienter, employed devices, schemes, or artifices to
defraud;
b.obtained money or property by means of untrue statements of a
material fact or by omitting to state a material fact necessary in
order to make the statements made, in light of the
circumstances under which they were made, not misleading; or
c.engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon the
purchaser.
62.By engaging in the conduct described above, each of the defendants
violated, and unless restrained and enjoined will continue to violate, Section 17(a)
of the Securities Act, 15 U.S.C. § 77q(a).

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SECOND CLAIM FOR RELIEF 
FRAUD IN CONNECTION WITH THE
PURCHASE OR SALE OF SECURITIES
Violations and Aiding and Abetting Violations of
Section 10(b) of the Exchange Act 
and Rule 10b-5 thereunder
(Against all Defendants)
63.The Commission realleges and incorporates by reference ¶¶ 1 through 
59 above.
64.Defendants, and each of them, by engaging in the conduct described
above, directly or indirectly, in connection with the purchase or sale of a security,
by the use of means or instrumentalities of interstate commerce, of the mails, or of
the facilities of a national securities exchange, with scienter:
a.employed devices, schemes, or artifices to defraud; 
b.made untrue statements of a material fact or omitted to state a
material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading; or 
c.engaged in acts, practices, or courses of business which
operated or would operate as a fraud or deceit upon other
persons.
65.By engaging in the conduct described above, each of the defendants
violated, and unless restrained and enjoined will continue to violate, Section 10(b)
of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R.
§ 240.10b-5.
66.In the alternative, defendants Treadway and Corba, and each of them,
knowingly provided substantial assistance to PAFM's, PEA's and PAD's violations
of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5

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thereunder, 17 C.F.R. § 240.10b-5.
67.By engaging in the conduct described above and pursuant to Section
20(e) of the Exchange Act, 15 U.S.C. § 78t(e), defendants Treadway and Corba
aided and abetted PAFM's, PEA's and PAD's violations, and unless restrained and
enjoined will continue to aid and abet violations, of Section 10(b) of the Exchange
Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
THIRD CLAIM FOR RELIEF
FRAUD BY AN INVESTMENT ADVISER
Violations of and Aiding and Abetting Violations of
Section 206(1) and 206(2) of the Advisers Act
(Against All Defendants)
68.The Commission realleges and incorporates by reference ¶¶ 1 through 
59 above.
69.Defendants PAFM and PEA, and each of them, by engaging in the
conduct described above,  directly or indirectly, by use of the mails or means or
instrumentalities of interstate commerce:
a.with scienter, employed devices, schemes, or artifices to
defraud clients or prospective clients;
b.engaged in transactions, practices, or courses of business which
operated as a fraud or deceit upon clients or prospective clients.
70.By engaging in the conduct described above, defendants PAFM and
PEA violated, and unless restrained and enjoined will continue to violate, Sections
206(1) and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) & 80b-6(2).
71.Defendants PAD, Treadway and Corba, and each of them, knowingly
provided substantial assistance to PAFM's and PEA's violations of Sections 206(1)
and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) & 80b-6(2).
72.By engaging in the conduct described above and pursuant to Section
209(d) of the Advisers Act, 15 U.S.C. § 80b-9(d), defendants PAD, Treadway and

- 20 -
Corba aided and abetted PAFM's and PEA's violations, and unless restrained and
enjoined will continue to aid and abet violations, of Sections 206(1) and 206(2) of
the Advisers Act, 15 U.S.C. §§ 80b-6(1) & 80b-6(2).
FOURTH CLAIM FOR RELIEF
MISUSE OF NONPUBLIC INFORMATION
Violation of Section 204A of the Advisers Act
(Against Defendants PAFM and PEA)
73.The Commission realleges and incorporates by reference ¶¶ 1 through 
59 above.
74.Defendants PAFM and PEA, and each of them, while acting as
investment advisers, by use of the means or instruments of transportation or
communication in interstate commerce, or of the mails, failed to establish,
maintain, and enforce written policies and procedures reasonably designed to
prevent the misuse in violation of the Advisers Act or the Exchange Act, or the
rules or regulations thereunder, of material, nonpublic information by PAFM,
PEA, or any person associated with these entities.
75.Defendant PEA disclosed material, nonpublic information concerning
the portfolio holdings of PAFM's and PEA's advisory clients.
76.By engaging in the conduct described above, Defendants PAFM and
PEA violated, and unless restrained and enjoined, will continue to violate, Section
204A of the Advisers Act, 15 U.S.C. § 80b-4a.

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FIFTH CLAIM FOR RELIEF
EFFECTING TRANSACTIONS IN INVESTMENT COMPANIES
ON LESS ADVANTAGEOUS BASIS
Violation of Section 17(d) of the Investment Company Act
and Rule 17d-1 Thereunder
(Against Defendants PAFM, PEA and PAD)
77.The Commission realleges and incorporates by reference ¶¶ 1 through 
59 above.
78.Defendants PAFM and PEA, while acting as affiliated persons of a
registered investment company, and Defendant PAD, while acting as principal
underwriter, and each of them, effected transactions in which certain of the Funds
were joint participants with PAFM, PEA, and PAD, in contravention of rules and
regulations the Commission has prescribed for the purpose of limiting or
preventing participation by registered companies, such as the Funds, on a basis
different from or less advantageous than that of such other participants without
filing an application with the Commission and without a Commission order
approving the transaction.
79.By engaging in the conduct described above, Defendants PAFM,
PEA, and PAD violated, and unless restrained and enjoined will continue to
violate, Section 17(d) of the Investment Company Act, 15 U.S.C. § 80a-17(d), and
Rule 17d-1 thereunder, 17 C.F.R. § 270.17d-1.

- 22 -
SIXTH CLAIM FOR RELIEF
MISREPRESENTATIONS AND OMISSIONS IN INVESTMENT
COMPANY REGISTRATION STATEMENT
Violations of Section 34(b) of the Investment Company Act
(Against Defendants PAFM, PEA, Treadway and Corba)
80.The Commission realleges and incorporates by reference ¶¶ 1 through 
59 above.
81.Defendants PAFM, PEA, Treadway, and Corba, and each of them, by
engaging in the conduct described above:
a.made untrue statements of a material fact in a registration
statement, application, report, account, record, or other
document filed or transmitted pursuant to the Investment
Company Act, the keeping of which is required pursuant to
Section 31(a), 15 U.S.C. 80a-30(a);
b.omitted to state in such documents facts necessary in order to
prevent the statements made therein, in the light of the
circumstances under which they were made, from being
materially misleading.
82.By engaging in the conduct described above, each of defendants
PAFM, PEA, Treadway, and Corba violated, and unless restrained and enjoined
will continue to violate, Section 34(b) of the Investment Company Act, 15 U.S.C.
§ 80a-33(b).

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SEVENTH CLAIM FOR RELIEF
BREACH OF FIDUCIARY DUTY
Section 36(a) of the Investment Company Act
(Against All Defendants)
83.The Commission realleges and incorporates by reference ¶¶ 1 through 
59 above.
84.Defendants served or acted within five years of the date of the filing
of this action with respect to a registered investment company as an officer,
director, member of an advisory board, investment adviser, depositor, or principal
underwriter and engaged in acts or practices constituting a breach of fiduciary
duty involving personal misconduct.
85.By reason of the foregoing, defendants should be permanently
enjoined from acting in any and all capacities set forth in Section 36 of the
Investment Company Act.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
I.
Issue findings of fact and conclusions of law that the defendants committed
the alleged violations.
II.
Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d),
permanently enjoining defendants PAFM and PEA and their officers, agents,
servants, employees and attorneys, and those persons in active concert or
participation with any of them, who receive actual notice of the order by personal
service or otherwise, and each of them, from violating Section 17(a) of the
Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §
78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, Sections 204A, 206(1),
and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-4a, 80b-6(1), and 80b-6(2), and

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Sections 17(d), 34(b), and 36(a) of the Investment Company Act, 15 U.S.C. §§
80a-17(d), 80a-33(b), and 80a-35(a), and Rule 17d-1 thereunder, 17 C.F.R. §
270.17d-1.
III.
Issue a judgment, in a form consistent with Fed. R. Civ. P. 65(d),
permanently enjoining defendant PAD and its officers, agents, servants,
employees and attorneys, and those persons in active concert or participation with
any of them, who receive actual notice of the order by personal service or
otherwise, and each of them, from violating Section 17(a) of the Securities Act, 15
U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule
10b-5 thereunder, 17 C.F.R. § 240.10b-5, Sections 206(1) and 206(2) of the
Advisers Act, 15 U.S.C. §§ 80b-6(1) and 80b-6(2), and Sections 17(d) and 36(a)
of the Investment Company Act, 15 U.S.C. §§ 80a-17(d) and 80a-35(a), and Rule
17d-1 thereunder, 17 C.F.R. § 270.17d-1.
IV.
Issue a judgment, in a form consistent with Fed. R. Civ. P. 65(d),
permanently enjoining defendants Treadway and Corba, and their officers, agents,
servants, employees and attorneys, and those persons in active concert or
participation with any of them, who receive actual notice of the order by personal
service or otherwise, and each of them, from violating Section 17(a) of the
Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §
78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, Sections 206(1) and
206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) and 80b-6(2), and Sections
34(b) and 36(a) of the Investment Company Act, 15 U.S.C. §§ 80a-33(b) and
80a-35(a).
V.
Issue a finding that defendants breached their fiduciary duty in a manner
involving personal misconduct and permanently enjoining defendants, pursuant to

- 25 -
Section 36(a) of the Investment Company Act, 15 U.S.C. § 80a-35(a), from
serving or acting with respect to any registered investment company as an officer,
director, member of any advisory board, investment adviser, depositor, or
principal underwriter.
VI.
Order defendants to disgorge all ill-gotten gains from their illegal conduct,
together with prejudgment interest thereon.
VII.
Order defendants to pay civil penalties under Section 20(d) of the Securities
Act, 15 U.S.C. § 77t(d), Section 21(d)(3) of the Exchange Act, 15 U.S.C. §
78u(d)(3), Section 209(e) of the Advisers Act, 15 U.S.C. § 80b-9(e)(1), and
Section 42(e) of the Investment Company Act, 15 U.S.C. § 80a-41(e).
VIII.
Retain jurisdiction of this action in accordance with the principles of equity
and the Federal Rules of Civil Procedure in order to implement and carry out the
terms of all orders and decrees that may be entered, or to entertain any suitable
application or motion for additional relief within the jurisdiction of this Court.
IX.
Grant such other and further relief as this Court may determine to be just
and necessary.
DATED:May 6, 2004
      s/ Nicolas Morgan                  
Nicolas Morgan
Michele Wein Layne
Lorraine B. Echavarria
Adam D. Schneir
      s/ Dorothy Heyl                      
Dorothy Heyl (DH-1601)
LOCAL COUNSEL
Attorneys for Plaintiff
Securities and Exchange Commission

Nicolas Morgan
Michele Wein Layne
Lorraine B. Echavarria
Adam D. Schneir

Attorneys for Plaintiff
Securities and Exchange Commission
Randall R. Lee, Regional Director
Sandra J. Harris, Associate Regional Director
5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
Telephone: (323) 965-3998
Facsimile: (323) 965-3908

LOCAL COUNSEL:
Dorothy Heyl (DH-1601)
Securities and Exchange Commission
Northeast Regional Office
233 Broadway
New York, New York 10279
(646) 428-1758 
(646) 428-1973 (facsimile)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,

v.

PIMCO ADVISORS FUND
MANAGEMENT LLC, PEA
CAPITAL LLC f/k/a PIMCO EQUITY
ADVISORS LLC, PIMCO
ADVISORS DISTRIBUTORS LLC,
STEPHEN J. TREADWAY, AND
KENNETH W. CORBA, 

Defendant(s).

04 Civ.  3464 (VM)

COMPLAINT



- 2 -

Plaintiff Securities and Exchange Commission ("Commission") alleges as

follows:

JURISDICTION AND VENUE

1. This Court has jurisdiction over this action pursuant to Sections

20(b), 20(d)(1) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15

U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a), Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27

of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d)(1),

78u(d)(3)(A), 78u(e) & 78aa, Sections 209(e)(1) and 214 of the Investment

Advisers Act of 1940 ("Advisers Act"), 15 U.S.C. §§ 80b-9(e)(1) & 80b-14, and

Sections 42(d), 42(e)(1) and 44 of the Investment Company Act of 1940

("Investment Company Act"), 15 U.S.C. §§ 80a-41(d), 80a-41(e)(1) & 80a-43. 

Defendants have, directly or indirectly, made use of the means or instrumentalities

of interstate commerce, of the mails, or of the facilities of a national securities

exchange in connection with the transactions, acts, practices and courses of

business alleged in this Complaint.

2. Venue is proper in this district pursuant to Section 22(a) of the

Securities Act, 15 U.S.C. § 77v(a), Section 27 of the Exchange Act, 15 U.S.C. §

78aa, Section 214 of the Advisers Act, 15 U.S.C. § 80b-14, and Section 44 of the

Investment Company Act, 15 U.S.C. § 80a-43, because certain of the transactions,

acts, practices and courses of conduct constituting violations of the federal

securities laws occurred within this district.

SUMMARY

3. This action concerns a fraud perpetrated by defendants on

unsuspecting investors in several mutual funds that are part of the PIMCO Funds:

Multi-Manager Series ("PIMCO Funds" or the "Funds").  The defendants, parties

entrusted with advising and distributing the Funds, represented to investors that

the Funds would limit a practice known as market timing (the frequent buying and

selling of shares of the same mutual fund).  Consistent with this policy, the Funds



- 3 -

actively policed market timing activities and prevented some Fund shareholders

from engaging in it.  However, without any disclosure to Fund shareholders (and

contrary to representations), the defendants orchestrated a secret arrangement with

one preferred client to allow market timing in amounts exceeding $4 billion in

trading.

4. From February 2002 to April 2003, the PIMCO Funds' advisers,

PIMCO Advisers Fund Management LLC ("PAFM") and PEA Capital LLC

("PEA"), and the Funds' distributing broker-dealer, PIMCO Advisors Distributors

LLC ("PAD") (collectively, "PIMCO Entities"), provided "timing capacity" in

their mutual funds to a market timer, Canary Capital Partners LLC ("Canary"), in

return for Canary's investment of "sticky assets" in a mutual fund and a hedge fund

from which PAFM and PEA earned management fees.  "Sticky assets" are long-

term investments made in exchange for permitting market timing in mutual funds. 

The prospectuses for the mutual funds failed to disclose that an agreement had

been made to permit timing in the funds in exchange for sticky assets.  In addition,

the prospectuses gave the misleading impression that the mutual funds

discouraged timing.

5. At the height of the agreement, Canary used over $60 million in

timing capacity in several different mutual funds and invested $27 million in

sticky assets into a mutual fund and a hedge fund.  Finally, PEA improperly failed

to have written policies designed to prevent the misuse of the Funds' nonpublic

portfolio holdings, and, in fact, PEA disclosed those holdings to the broker-dealer

that executed Canary's trades.

6. Stephen J. Treadway, the CEO of PAFM and PAD, as well as the

Chairman of the Board of Trustees for the PIMCO Funds:  Multi-Manager Series,

approved the market timing arrangement in approximately January 2002. 

Treadway, however, did not disclose his knowledge of the arrangement to the

Board of Trustees until approximately September 2003.



- 4 -

7. Kenneth W. Corba, PEA's former Chief Executive Officer, negotiated

and approved the timing and sticky asset arrangement with Canary.  He also

managed the PIMCO Growth Fund, which provided $30 million in market timing

capacity to Canary, and the PIMCO Select Growth Fund, which received $25

million in sticky assets from Canary.

8. Defendants permitted the arrangement with Canary despite their

awareness of the potential harmful effects of timing on mutual funds and an ability

to detect and prevent timing.

9. Through this conduct, PAFM and PEA violated Section 17(a) of the

Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §

78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, Sections 204A, 206(1),

and 206(2) of the Advisers Act ("Advisers Act"), 15 U.S.C. §§ 80b-4a, 80b-6(1),

and 80b-6(2), and Sections 17(d) and 34(b) of the Investment Company Act

("Investment Company Act"), 15 U.S.C. §§ 80a-17(d) and 80a-33(b), and Rule

17d-1 thereunder, 17 C.F.R. § 270.17d-1, and breached their fiduciary duties

under Section 36(a) of the Investment Company Act, 80a-35(a).

10. Through this conduct, PAD violated Section 17(a) of the Securities

Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section

17(d) of the Investment Company Act and Rule 17d-1 thereunder, aided and

abetted violations of Sections 206(1) and 206(2) of the Advisers Act, and

breached its fiduciary duties under Section 36(a) of the Investment Company Act.

11. Through this conduct, Treadway and Corba violated Section 17(a) of

the Securities Act, violated, or aided and abetted violations of, Section 10(b) of the

Exchange Act and Rule 10b-5 thereunder, violated Section 34(b) of the

Investment Company Act, aided and abetted violations of Sections 206(1) and

206(2) of the Advisers Act, and breached their fiduciary duties under Section

36(a) of the Investment Company Act.



- 5 -

THE DEFENDANTS

12. PIMCO Advisors Fund Management LLC ("PAFM"), a Delaware

limited liability company located in New York, New York, is an investment

adviser registered with the Commission under the Advisers Act.  It is an

investment adviser and administrator for the PIMCO Funds: Multi-Manager Series

(the "PIMCO Funds" or the "Funds"), a registered investment company comprised

of 45 separate investment series or mutual funds.  PAFM provides investment

supervisory services to the PIMCO Funds, and for these services, the Funds pay

PAFM an annual advisory fee consisting of a percentage of average daily net

assets held by the Funds.

13. PEA Capital LLC, f/k/a PIMCO Equity Advisors LLC ("PEA"), a

Delaware limited liability company located in New York, New York, is an

investment adviser registered with the Commission under the Advisers Act.  It is

the investment sub-adviser for the PEA Growth Fund, PEA Opportunity Fund,

PEA Target Fund, PEA Innovation Fund, and several other funds, all of which

were part of the PIMCO Funds.  In 2002, PEA also served as the sub-adviser for

the Select Growth Fund.  As the sub-adviser, PEA has full investment discretion

and makes all determinations with respect to the investment of a fund's assets

subject to the general supervision of PAFM and the Board of Trustees of the

PIMCO Funds.  On February 6, 2004, PEA filed a Form ADV with the

Commission stating that it had changed its name from PIMCO Equity Advisors

LLC to PEA Capital LLC.  As of December 31, 2003, accounts managed by PEA

had combined assets of approximately $11.3 billion.

14. PIMCO Advisors Distributors LLC ("PAD"), a Delaware limited

liability company located in Stamford, Connecticut, is a broker-dealer registered

with the Commission under the Exchange Act.  PAD serves as the distributor for

the PIMCO Funds.  PAD also employed individuals responsible for monitoring

trading activity to prevent or limit market timing in the PIMCO Funds (the "timing



- 6 -

police").

15. Stephen J. Treadway ("Treadway"), age 56, a resident of New York,

New York, is the Chief Executive Officer and a Managing Director of PAFM, the

Chief Executive Officer and a Managing Director of PAD, and the Chairman of

the Board of Trustees for the PIMCO Funds.

16. Kenneth W. Corba ("Corba"), age 51, a resident of Greenwich,

Connecticut, was the Chief Executive Officer, Chief Investment Officer, and a

Managing Director of PEA.  He was also the portfolio manager for the PEA

Growth and Select Growth Funds.  Corba joined PEA in 1999 and resigned from

PEA on April 13, 2004.

RELEVANT ENTITY

17. Canary Capital Partners, LLC was, at all relevant times, a domestic

hedge fund, and Canary Capital Partners, Ltd. was, at all relevant times, an

offshore hedge fund domiciled in Bermuda, managed by an investment adviser,

Canary Investment Management, LLC, and its principal, Edward J. Stern

(collectively "Canary").  African Grey Capital Associates LLC was an entity

formed by Stern and affiliated with the various Canary entities.  Canary has offices

in Secaucus, New Jersey and New York, New York.

THE FRAUDULENT SCHEME

A. The Timing Agreement with Canary

18. From 2001 to the present, PAFM and PEA collectively served as the

adviser and sub-adviser for certain mutual funds offered by the PIMCO Funds:

Multi-Manager Series.  These funds included the Growth, Target, Opportunity,

Innovation, Select Growth, and Value Funds, among others.  In or around October

2002, the Select Growth Fund was merged into the Growth Fund.  After this time,

the Select Growth Fund ceased to exist.

19. In October 2001, representatives of a registered broker-dealer (the

"broker representatives") were introduced to PEA by a third party trust company. 



- 7 -

The representatives sought market timing capacity in the PIMCO family of funds

for their clients.

20. In or around early November 2001, the broker representatives met

with Corba and PEA's former Senior Vice President of Institutional Marketing.  At

this meeting, which occurred in Corba's office, the broker representatives stated

their interest in arranging for approximately $100 million in trading capacity in the

PIMCO family of funds at a rate of three to four round-trip exchanges per month. 

The broker representatives also specified that they only wanted capacity in funds

where their client's investment would consist of 3% or less of the fund value.  In

exchange for this ability to market time, the broker representatives proposed a

long-term investment consisting of 25% of the value of trading capacity into one

of the PIMCO Entities' other investment products.

21. After the meeting with the broker representatives, Corba met with

PEA's managing directors and portfolio managers regarding the proposed

arrangement.  At this meeting, Corba indicated that PEA was entering a market

timing relationship involving PEA's growth-type funds (i.e., the Growth, Target,

and Innovation Funds).

22. After the meeting with the managing directors and portfolio

managers, Corba instructed PEA's former Senior Vice President of Institutional

Marketing to work out an agreement that permitted trading capacity in the PIMCO

Growth, Target, and Innovation Funds.  The terms of the agreement were that

Canary would invest $100 million in the Growth, Target, and Innovation Funds;

the assets could be traded in up to four round-trips per month; the amount of

money invested in each fund by Canary could not exceed 3% of the fund's assets;

and Canary agreed to make a long-term investment representing 25% of the assets

under management into the PIMCO Select Growth Fund.

23. In or about January 2002, Corba met with Treadway to discuss the

proposed market timing relationship.  At this meeting, Corba told Treadway that a



- 8 -

member of a very wealthy and reputable family, Edward Stern, was interested in

the PIMCO Funds and in establishing a long-term relationship with PEA.  Corba

also told Treadway at this meeting that he wanted to get Stern to invest into the

Select Growth Fund.  Corba further told Treadway that Stern was interested in

active trading that could potentially run afoul of the PIMCO Entities' market

timing policies.  In describing the proposed arrangement to Treadway, Corba

stated that the PIMCO Entities would be informed about Stern's trades and that

Stern would not invest more than 3% into any one of the PEA-managed funds at

any one time.

24. Corba needed Treadway's approval to proceed with the Stern

relationship because it involved a significant amount of money and the

accommodation of market timing.  Corba also needed Treadway's approval

because Treadway was the Chairman of the PIMCO Funds and the PAD "timing

police" ultimately reported to Treadway.  At the meeting with Corba, Treadway

approved the relationship with Stern.

25. In February 2002, Canary executed its first round-trip exchange in the

PIMCO Innovation Fund.  After the execution of this transaction, however, the

portfolio manager for the PIMCO Innovation Fund decided that the Canary timing

activity was too disruptive and forbade further trading by Canary in the fund.

26. On or about March 5, 2002, Corba and PEA's former Senior Vice

President of Institutional Marketing met with Stern and the broker representatives

at The Racquet Club in New York City and discussed, among other things, the

market timing agreement between PEA and Canary.  They discussed that the

agreement permitted four round-trip exchanges in each fund per month and

included a 25% long-term investment in the PIMCO Select Growth Fund.  In

addition, Stern expressed an interest in obtaining additional capacity in other

PIMCO Funds and investing in a PIMCO hedge fund.  Corba told Stern about the

PIMCO Equity Advisors Horizon Fund LP (the "Horizon Fund") and, specifically,



- 9 -

that it had a good performance record.  The Horizon Fund was a hedge fund

focused on small cap growth with assets of $31.1 million as of February 28, 2003.

27. Throughout March 2002, Stern continued to express an interest in

obtaining additional capacity in other PIMCO Funds.  Corba knew that Stern was

disappointed about losing capacity in the Innovation Fund.  Corba, therefore, told

PEA's former Senior Vice President of Institutional Marketing that Canary could

consider the Opportunity Fund if they were interested but that because it was a

much smaller fund the capacity level would not be the same as what they had with

the Innovation Fund.

28. On or about March 22, 2002, Stern met with the portfolio manager for

the Horizon and Opportunity Funds and PEA's former Senior Vice President of

Institutional Marketing to learn about the Horizon Fund.  On March 25, 2002, the

former Senior Vice President of Institutional Marketing informed Corba that

Canary still wanted to invest in the Innovation and Opportunity Funds as part of

the deal.  Corba knew that part of the long term investment in the Horizon Fund

would be to gain further access to the funds including the Opportunity Fund.

29. Soon after the March 22, 2002 meeting with Stern, Canary invested

$2 million in the Horizon Fund on a long-term basis and received $5 million in

trading capacity in the Opportunity Fund.

30. In addition, Canary obtained a waiver of the lock-up period for

investments into the Horizon Fund in the event the market timing relationship with

Canary and PEA ended.

31. PEA received 1% of total assets under management and a

performance fee consisting of 20% of the net profits generated by the fund in

annual fees from the Horizon Fund.  Likewise, PAFM and PEA collectively

received an advisory fee of 0.65% of net assets under management for the

Opportunity Fund.



- 10 -

B. Canary's Trading in the PIMCO Funds

32. From on or around February 1, 2002 through February 8, 2002,

Canary invested $25 million in sticky or long-term assets into the PIMCO Select

Growth Fund, which almost doubled the assets of that fund.  Between February 4

and February 7, 2002, Canary also placed approximately $60 million into a

combination of fixed-income PIMCO funds for timing purposes.  On or around

February 8, 2002, Canary began its timing activities by purchasing approximately

$24 million in both the PIMCO Target and Innovation Funds.  On February 12,

2002, Corba and Treadway, among others, received an e-mail notification from a

member of PAD's "timing police" regarding the broker representative's initial

transactions on behalf of the Canary accounts.

33. From on or around February 8, 2002 through April 3, 2002, Canary

traded extensively into and out of the PIMCO Target Fund from one of the

following funds:  PIMCO Total Return Fund, PIMCO Real Return Fund, PIMCO

Short-Term Fund, or the PIMCO Low Duration Fund (the "fixed-income PIMCO

funds") or the PIMCO money market.  The fixed-income PIMCO funds were not

parties to the special Canary arrangement.  In fact, in March 2002, the

fixed-income PIMCO funds requested that this trading activity cease.

34. From on or around February 8, 2002 through February 21, 2002,

Canary also traded in the PIMCO Innovation Fund.  The Innovation Fund had an

investment strategy, however, that was negatively affected by the extreme inflow

and outflow of cash.  Thus, after the first round-trip exchange allowed by the

Canary arrangement, the portfolio manager for Innovation determined that the

market timing activity was disruptive to the fund.

35. As a result of being forced to stop its activities in the Innovation

Fund, Canary reduced its total timing capacity at PIMCO Funds from the

originally promised $100 million to approximately $60 million.  The original

agreement linked the amount of money under management as sticky assets to the



- 11 -

volume of timing capacity.  On or around April 12, 2002, Canary lowered its

"sticky asset" investment in the PIMCO Select Growth Fund from $25 million to

$20 million to reflect the lower timing capacity Canary received in the PIMCO

Funds.  On or around this same date, the broker representatives notified Corba and

others about the $5 million redemption from the Select Growth Fund.  Canary

began its timing activities in the PIMCO Growth Fund on or around April 11,

2002.

36. Canary timed the Growth and Target Funds from April 2002 until

November 2002.  Throughout this period of time, the broker representatives

e-mailed Corba and others trade notifications for the purchases and redemptions of

the Funds.  These notifications demonstrated the frequent trading activities in the

Canary accounts.

37. From April 2002 through November 2002, Canary made

approximately 28 round-trip exchanges in the Growth Fund.  The overall dollar

volume of these exchanges was nearly $1.8 billion.  From February 2002 through

November 2002, Canary made approximately 40 round-trip exchanges in the

Target Fund.  The overall dollar volume of these exchanges was over $2 billion.  

38. Canary also invested $2 million in sticky assets into the Horizon Fund

on or around April 1, 2002.  Canary then placed $5 million in the Opportunity

Fund on or around April 11, 2002, and market timed that account until on or

around April 3, 2003.  From April 2002 through April 2003, Canary made

approximately 40 round-trip exchanges in the Opportunity Fund.  The overall

dollar volume of these exchanges was approximately $371 million.

C. The PIMCO Funds' Disclosures

39. From 2001 to 2003, the prospectus for the PIMCO Funds, which each

of the defendants had knowledge of, stated that a pattern of exchanges

characteristic of market timing strategies may be deemed detrimental to the fund

and limited the number of round-trip exchanges available to investors. 



- 12 -

Specifically, in the November 2001 and February 2002 prospectuses, the PIMCO

Funds made the following disclosure regarding market timing:

The Trust reserves the right to refuse exchange
purchases, if, in the judgment of PIMCO Advisors, the
purchase would adversely affect a Fund and its
shareholders.  In particular, a pattern of exchanges
characteristic of "market-timing" strategies may be
deemed by PIMCO Advisors to be detrimental to the
Trust or a particular Fund.  Currently, the Trust limits the
number of "round trip" exchanges an investor may make. 
An investor makes a "round trip" exchange when the
investor purchases shares of a particular Fund,
subsequently exchanges those shares for shares of a
different PIMCO Fund and then exchanges back into the
originally purchased Fund.  The Trust has the right to
refuse any exchange for any investor who completes (by
making the exchange back into the shares of the
originally purchased Fund) more than six round trip
exchanges in any twelve-month period.  Although the
Trust has no current intention of terminating or
modifying the exchange privilege other than as set forth
in the preceding sentence, it reserves the right to do so at
any time.

From November 2001 through September 2003, there were only minor changes to

this language.  The PIMCO Funds' Statements of Additional Information and

Shareholders Guides also made similar disclosures concerning market timing.

40. These disclosures were false and misleading, and defendants knew

they were false and misleading as a result of the secret market timing arrangement

they entered into with Canary.  None of the prospectuses disclosed that selected

shareholders could make long-term investments in some PIMCO investment

vehicles in order to obtain the right to market time PIMCO mutual funds. 

Treadway signed the PIMCO Funds' registration statements that were filed with

the Commission.

41. PAD froze nearly 400 accounts in 2002 because of market timing or

frequent trading in those accounts.  From January 2003 through October 2003,

PAD sent 104 warning letters to registered representatives, prohibited 67

registered representatives from selling PIMCO Funds, and froze 317 accounts.



- 13 -

42. In fact, in furtherance of the stated policy, PAD prevented some

shareholders from performing exchanges based on the policy articulated in the

prospectus.  PAD monitored the trading patterns in the PIMCO Funds and, in so

doing, was able to identify some market timers.  When PAD identified market

timers, it sent letters to them warning that they could not use PIMCO Funds to

execute market timing strategies.  Specifically, these letters stated that frequent

transactions violated prospectus policies and were detrimental to the Funds and

harmful to shareholders.  As a further measure, PAD instructed the transfer agent

for the PIMCO Funds to block or freeze trades in market timers' accounts.

43. PAD maintained a log listing broker-dealers and registered

representatives identified as market timers.  On the log, PAD identified the market

timer and the action taken to deter that entity from continuing to time the PIMCO

Funds, including whether a warning letter was sent, the account was frozen, or the

account was closed.

44. In at least one communication with a broker dealer, PAD interpreted

the prospectus disclosure as a strict prohibition against market timing.

45. Contrary to the disclosures in its prospectuses and to shareholders,

the PIMCO Entities allowed Canary to engage in a practice of market timing in

exchange for long-term investments in a PIMCO mutual fund and a hedge fund. 

Specifically, as described above, the PIMCO Entities allowed Canary to make

approximately 108 round-trip exchanges from February 2002 to April 2003

pursuant to Canary's special timing arrangement.

D. The Adverse Effects of Market Timing on the PIMCO Funds

46. In May 2002, PAFM advised the Board of Trustees for the PIMCO

Funds, including Treadway, of the adverse impact that market timers had on

mutual funds.  The negative impacts were threefold:  (1) increased trading and

brokerage costs; (2) disruption of portfolio management activities; and (3)

additional capital gains that increased shareholders' tax liabilities.  After receipt of



- 14 -

this advice, the Board of Trustees imposed a redemption fee on short-term

exchanges in certain classes of fund shares to, among other things, reimburse the

shareholders for costs of market timing and create a disincentive for market timing

activity.  But the Board of Trustees did not impose a similar fee on the retail class

of shares used by Canary in its special arrangement.  These redemption fees

became effective on June 10, 2002.

47. At a June 20, 2002 Board of Trustees meeting, Treadway received

authority to impose redemption fees on the class of shares used by Canary (on a

temporary basis prior to the September board meeting) if he believed such action

was in the best interests of the shareholders.  However, these redemption fees were

not imposed on that class of shares until February 2004.

48. As discussed above, Treadway, the Chairman of the Board of

Trustees for the PIMCO Funds, had approved the market timing arrangement with

Canary prior to PAFM's advice to the Board of Trustees.  Treadway, however, did

not disclose the arrangement to the Board of Trustees during the time these

redemption fees were being considered.  In fact, Treadway did not disclose his

knowledge of the arrangement to the Board of Trustees until approximately

September 2003.

49. Moreover, the Canary trading was the type of market timing that PAD

prohibited for other investors because of potential detriment to the Funds.  In fact,

when Canary tried to market time through Cockatoo Capital -- a Canary entity

without a special arrangement -- PAD sent out a warning letter stating that the

frequency of transactions violated prospectus policies and was detrimental to the

fund and its shareholders.

E. Treadway and Corba Eventually Terminate the Canary Relationship

50. Both Treadway and Corba received warning signals concerning

Canary's trading activities soon after approving the Canary relationship.  On

March 25, 2002, PEA's former Senior Vice President of Institutional Marketing



- 15 -

forwarded to Corba a March 10, 2002 e-mail exchange between Canary and the

former Senior Vice President of Institutional Marketing, which provided an early

indication to Corba that Canary's frequent trading activity was problematic and

raised various concerns at the fixed-income PIMCO funds.

51. On April 26, 2002, Corba, Treadway, and others received an e-mail

from a member of PAD's "timing police" stating that one of the Canary accounts

had already executed five round-trip exchanges in the Target Fund for the month

of April.  The e-mail further stated that the Canary accounts "tend[ed] to divide the

movement of shares (in or out of the fund[s]) across a couple of days thereby

increasing the number of individual transactions hitting the account[s]."  In

response to this e-mail, Treadway instructed a senior PAD officer to formulate a

"more precise and limiting definition of what constitutes 4 round trips."

52. On April 29, 2002, the same member of PAD's "timing police" sent

an e-mail to the broker representatives, Treadway, Corba, and others alerting them

that the rapid fire trading activity in the Canary accounts resulted in trade

settlement problems.

53. On May 17, 2002, Corba sent an e-mail to one of the broker

representatives, and others, characterizing Canary's trading as "the most

opportunistic but extreme form of market timing [he had] ever seen."

54. On May 23, 2002, Corba sent one of the broker representatives an

e-mail referring to "another one day transaction" by Canary.  On June 4 and 11,

2002, Corba sent one of the broker representatives additional e-mails further

complaining about Canary's frequent one-day round trip transactions.

55. Treadway and Corba discussed the market timing arrangement

approximately once per month.  Around late April or early May 2002, Treadway

told Corba that Canary's trading levels and volumes were higher than anticipated

and that the Canary accounts were more actively traded than Treadway expected. 

Corba agreed with Treadway.  Nevertheless, Treadway and Corba allowed Canary



- 16 -

to continue market timing the PIMCO Funds for several more months.

56. In or around late August or early September 2002, Treadway and

Corba finally decided to terminate the Canary arrangement.  Despite that decision,

Canary was allowed to continue timing the Target and Growth Funds until

November 2002.  Indeed, Canary was allowed to time the Target and Growth

Funds until just after the Select Growth Fund merged with the Growth Fund in

October 2002.  Just prior to the merger of these two mutual funds, Canary

redeemed its sticky asset investment from the Select Growth Fund.  Canary

redeemed its shares in the Select Growth Fund on or around October 11, 2002, but

continued its timing activity until on or around November 21, 2002, at which point

all funds were withdrawn from the Target and Growth Funds.

57. Canary continued, however, to time the Opportunity Fund until on or

around April 3, 2003, and kept its sticky asset investment in the Horizon Fund

until on or around May 31, 2003.

F. The Disclosure of Nonpublic Portfolio Holdings

58. PAFM and PEA did not establish, maintain, or enforce written

policies and procedures designed to prevent disclosure of the PIMCO Funds'

nonpublic portfolio holdings.  PEA disclosed nonpublic portfolio holdings of the

Growth, Target, Opportunity, and Select Growth Funds to the broker

representatives.

59. The disclosure of the nonpublic holdings to the broker

representatives, some of which were forwarded to Canary, provided Canary and

possibly others the opportunity to trade in the securities held in the respective fund

portfolios.



- 17 -

FIRST CLAIM FOR RELIEF

FRAUD IN THE OFFER OR SALE OF SECURITIES

Violations of Section 17(a) of the Securities Act

(Against All Defendants)

60. The Commission realleges and incorporates by reference ¶¶ 1 through

59 above.

61. Defendants, and each of them, by engaging in the conduct described

above, directly or indirectly, in the offer or sale of securities by the use of means

or instruments of transportation or communication in interstate commerce or by

use of the mails:

a. with scienter, employed devices, schemes, or artifices to

defraud;

b. obtained money or property by means of untrue statements of a

material fact or by omitting to state a material fact necessary in

order to make the statements made, in light of the

circumstances under which they were made, not misleading; or

c. engaged in transactions, practices, or courses of business which

operated or would operate as a fraud or deceit upon the

purchaser.

62. By engaging in the conduct described above, each of the defendants

violated, and unless restrained and enjoined will continue to violate, Section 17(a)

of the Securities Act, 15 U.S.C. § 77q(a).



- 18 -

SECOND CLAIM FOR RELIEF 

FRAUD IN CONNECTION WITH THE

PURCHASE OR SALE OF SECURITIES

Violations and Aiding and Abetting Violations of

Section 10(b) of the Exchange Act 

and Rule 10b-5 thereunder

(Against all Defendants)

63. The Commission realleges and incorporates by reference ¶¶ 1 through 

59 above.

64. Defendants, and each of them, by engaging in the conduct described

above, directly or indirectly, in connection with the purchase or sale of a security,

by the use of means or instrumentalities of interstate commerce, of the mails, or of

the facilities of a national securities exchange, with scienter:

a. employed devices, schemes, or artifices to defraud; 

b. made untrue statements of a material fact or omitted to state a

material fact necessary in order to make the statements made, in

the light of the circumstances under which they were made, not

misleading; or 

c. engaged in acts, practices, or courses of business which

operated or would operate as a fraud or deceit upon other

persons.

65. By engaging in the conduct described above, each of the defendants

violated, and unless restrained and enjoined will continue to violate, Section 10(b)

of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R.

§ 240.10b-5.

66. In the alternative, defendants Treadway and Corba, and each of them,

knowingly provided substantial assistance to PAFM's, PEA's and PAD's violations

of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5



- 19 -

thereunder, 17 C.F.R. § 240.10b-5.

67. By engaging in the conduct described above and pursuant to Section

20(e) of the Exchange Act, 15 U.S.C. § 78t(e), defendants Treadway and Corba

aided and abetted PAFM's, PEA's and PAD's violations, and unless restrained and

enjoined will continue to aid and abet violations, of Section 10(b) of the Exchange

Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.

THIRD CLAIM FOR RELIEF

FRAUD BY AN INVESTMENT ADVISER

Violations of and Aiding and Abetting Violations of

Section 206(1) and 206(2) of the Advisers Act

(Against All Defendants)

68. The Commission realleges and incorporates by reference ¶¶ 1 through 

59 above.

69. Defendants PAFM and PEA, and each of them, by engaging in the

conduct described above,  directly or indirectly, by use of the mails or means or

instrumentalities of interstate commerce:

a. with scienter, employed devices, schemes, or artifices to

defraud clients or prospective clients;

b. engaged in transactions, practices, or courses of business which

operated as a fraud or deceit upon clients or prospective clients.

70. By engaging in the conduct described above, defendants PAFM and

PEA violated, and unless restrained and enjoined will continue to violate, Sections

206(1) and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) & 80b-6(2).

71. Defendants PAD, Treadway and Corba, and each of them, knowingly

provided substantial assistance to PAFM's and PEA's violations of Sections 206(1)

and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) & 80b-6(2).

72. By engaging in the conduct described above and pursuant to Section

209(d) of the Advisers Act, 15 U.S.C. § 80b-9(d), defendants PAD, Treadway and



- 20 -

Corba aided and abetted PAFM's and PEA's violations, and unless restrained and

enjoined will continue to aid and abet violations, of Sections 206(1) and 206(2) of

the Advisers Act, 15 U.S.C. §§ 80b-6(1) & 80b-6(2).

FOURTH CLAIM FOR RELIEF

MISUSE OF NONPUBLIC INFORMATION

Violation of Section 204A of the Advisers Act

(Against Defendants PAFM and PEA)

73. The Commission realleges and incorporates by reference ¶¶ 1 through 

59 above.

74. Defendants PAFM and PEA, and each of them, while acting as

investment advisers, by use of the means or instruments of transportation or

communication in interstate commerce, or of the mails, failed to establish,

maintain, and enforce written policies and procedures reasonably designed to

prevent the misuse in violation of the Advisers Act or the Exchange Act, or the

rules or regulations thereunder, of material, nonpublic information by PAFM,

PEA, or any person associated with these entities.

75. Defendant PEA disclosed material, nonpublic information concerning

the portfolio holdings of PAFM's and PEA's advisory clients.

76. By engaging in the conduct described above, Defendants PAFM and

PEA violated, and unless restrained and enjoined, will continue to violate, Section

204A of the Advisers Act, 15 U.S.C. § 80b-4a.- 21 -

FIFTH CLAIM FOR RELIEF

EFFECTING TRANSACTIONS IN INVESTMENT COMPANIES

ON LESS ADVANTAGEOUS BASIS

Violation of Section 17(d) of the Investment Company Act

and Rule 17d-1 Thereunder

(Against Defendants PAFM, PEA and PAD)

77. The Commission realleges and incorporates by reference ¶¶ 1 through 

59 above.

78. Defendants PAFM and PEA, while acting as affiliated persons of a

registered investment company, and Defendant PAD, while acting as principal

underwriter, and each of them, effected transactions in which certain of the Funds

were joint participants with PAFM, PEA, and PAD, in contravention of rules and

regulations the Commission has prescribed for the purpose of limiting or

preventing participation by registered companies, such as the Funds, on a basis

different from or less advantageous than that of such other participants without

filing an application with the Commission and without a Commission order

approving the transaction.

79. By engaging in the conduct described above, Defendants PAFM,

PEA, and PAD violated, and unless restrained and enjoined will continue to

violate, Section 17(d) of the Investment Company Act, 15 U.S.C. § 80a-17(d), and

Rule 17d-1 thereunder, 17 C.F.R. § 270.17d-1.



- 22 -

SIXTH CLAIM FOR RELIEF

MISREPRESENTATIONS AND OMISSIONS IN INVESTMENT

COMPANY REGISTRATION STATEMENT

Violations of Section 34(b) of the Investment Company Act

(Against Defendants PAFM, PEA, Treadway and Corba)

80. The Commission realleges and incorporates by reference ¶¶ 1 through 

59 above.

81. Defendants PAFM, PEA, Treadway, and Corba, and each of them, by

engaging in the conduct described above:

a. made untrue statements of a material fact in a registration

statement, application, report, account, record, or other

document filed or transmitted pursuant to the Investment

Company Act, the keeping of which is required pursuant to

Section 31(a), 15 U.S.C. 80a-30(a);

b. omitted to state in such documents facts necessary in order to

prevent the statements made therein, in the light of the

circumstances under which they were made, from being

materially misleading.

82. By engaging in the conduct described above, each of defendants

PAFM, PEA, Treadway, and Corba violated, and unless restrained and enjoined

will continue to violate, Section 34(b) of the Investment Company Act, 15 U.S.C.

§ 80a-33(b).



- 23 -

SEVENTH CLAIM FOR RELIEF

BREACH OF FIDUCIARY DUTY

Section 36(a) of the Investment Company Act

(Against All Defendants)

83. The Commission realleges and incorporates by reference ¶¶ 1 through 

59 above.

84. Defendants served or acted within five years of the date of the filing

of this action with respect to a registered investment company as an officer,

director, member of an advisory board, investment adviser, depositor, or principal

underwriter and engaged in acts or practices constituting a breach of fiduciary

duty involving personal misconduct.

85. By reason of the foregoing, defendants should be permanently

enjoined from acting in any and all capacities set forth in Section 36 of the

Investment Company Act.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:

I.

Issue findings of fact and conclusions of law that the defendants committed

the alleged violations.

II.

Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d),

permanently enjoining defendants PAFM and PEA and their officers, agents,

servants, employees and attorneys, and those persons in active concert or

participation with any of them, who receive actual notice of the order by personal

service or otherwise, and each of them, from violating Section 17(a) of the

Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §

78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, Sections 204A, 206(1),

and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-4a, 80b-6(1), and 80b-6(2), and



- 24 -

Sections 17(d), 34(b), and 36(a) of the Investment Company Act, 15 U.S.C. §§

80a-17(d), 80a-33(b), and 80a-35(a), and Rule 17d-1 thereunder, 17 C.F.R. §

270.17d-1.

III.

Issue a judgment, in a form consistent with Fed. R. Civ. P. 65(d),

permanently enjoining defendant PAD and its officers, agents, servants,

employees and attorneys, and those persons in active concert or participation with

any of them, who receive actual notice of the order by personal service or

otherwise, and each of them, from violating Section 17(a) of the Securities Act, 15

U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule

10b-5 thereunder, 17 C.F.R. § 240.10b-5, Sections 206(1) and 206(2) of the

Advisers Act, 15 U.S.C. §§ 80b-6(1) and 80b-6(2), and Sections 17(d) and 36(a)

of the Investment Company Act, 15 U.S.C. §§ 80a-17(d) and 80a-35(a), and Rule

17d-1 thereunder, 17 C.F.R. § 270.17d-1.

IV.

Issue a judgment, in a form consistent with Fed. R. Civ. P. 65(d),

permanently enjoining defendants Treadway and Corba, and their officers, agents,

servants, employees and attorneys, and those persons in active concert or

participation with any of them, who receive actual notice of the order by personal

service or otherwise, and each of them, from violating Section 17(a) of the

Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §

78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, Sections 206(1) and

206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) and 80b-6(2), and Sections

34(b) and 36(a) of the Investment Company Act, 15 U.S.C. §§ 80a-33(b) and

80a-35(a).

V.

Issue a finding that defendants breached their fiduciary duty in a manner

involving personal misconduct and permanently enjoining defendants, pursuant to



- 25 -

Section 36(a) of the Investment Company Act, 15 U.S.C. § 80a-35(a), from

serving or acting with respect to any registered investment company as an officer,

director, member of any advisory board, investment adviser, depositor, or

principal underwriter.

VI.

Order defendants to disgorge all ill-gotten gains from their illegal conduct,

together with prejudgment interest thereon.

VII.

Order defendants to pay civil penalties under Section 20(d) of the Securities

Act, 15 U.S.C. § 77t(d), Section 21(d)(3) of the Exchange Act, 15 U.S.C. §

78u(d)(3), Section 209(e) of the Advisers Act, 15 U.S.C. § 80b-9(e)(1), and

Section 42(e) of the Investment Company Act, 15 U.S.C. § 80a-41(e).

VIII.

Retain jurisdiction of this action in accordance with the principles of equity

and the Federal Rules of Civil Procedure in order to implement and carry out the

terms of all orders and decrees that may be entered, or to entertain any suitable

application or motion for additional relief within the jurisdiction of this Court.

IX.

Grant such other and further relief as this Court may determine to be just

and necessary.

DATED: May 6, 2004
      s/ Nicolas Morgan                  
Nicolas Morgan
Michele Wein Layne
Lorraine B. Echavarria
Adam D. Schneir

      s/ Dorothy Heyl                      
Dorothy Heyl (DH-1601)
LOCAL COUNSEL

Attorneys for Plaintiff
Securities and Exchange Commission