Lawyers for the Securities and Exchange Commission concluded their direct case against former PIMCO Advisors Distributors chief executive Stephen Treadway on Monday, and the defense called to the stand its sole witness: Treadway himself. With the SEC's case made, it's far from clear that the government will get what it wants from this trip to court.

The decision to call no other witnesses for the defense reflects how thorough the plaintiff was in issuing subpoenas, and how effectively Treadway's attorneys handled cross examinations. While the plaintiff has been at pains to point out Treadway's signature on the 2002 prospectus of PIMCO's Multi-Manager Series of funds, the defense has just as persistently argued that former PEA Capital chief Ken Corba -- who directly organized the relationship with financier Edward Stern and his company, Canary Capital Partners -- did not report to Treadway, and was not meant to operate under Treadway's supervision.

Questions SEC lawyers put to former PEA Capital portfolio managers succeeded in conveying that Corba, Treadway's erstwhile co-defendant (he recently settled with regulators for $200,000), enthusiastically embraced the investment relationship with Canary. But these witnesses had no discussions with Treadway, and could add nothing to the jury's understanding of what Treadway knew or did not know. Moreover, their references to Stern's $25 million long-term investment in the Select Growth Fund, which Corba managed, bolstered the impression that the Stern deal held enticements for Corba, but not necessarily for Treadway.

Cross-examining Corba and former Brean Murray broker Ryan Goldberg, who represented Stern, the defense scored bigger points. Under questioning by Treadway's lawyer, Alan Levine, Goldberg gave the impression that he and his partner arranged the trading of PIMCO funds through PEA Capital expressly because of Treadway's known opposition to market timing. Corba, hesitant and confused in his recollection of dates and conversations, almost certainly helped Treadway's case more than he hurt it.

Meanwhile, the matter of what or how much harm the Canary trading actually brought to PIMCO's average investors was not frequently broached, much less clarified, by SEC counsel. The Commission's lawyers remained behind a podium during questioning, often pausing to study notes. Levine, in contrast, perambulated and spoke seemingly off the cuff, his voice louder and far more theatrical than any of theirs.

It's worth noting that the Commission relied on reading Treadway's investigative testimony from 2004 (asked Monday by Levine's colleague, Stephen Ascher, whether he would have willingly appeared for the plaintiff, Treadway testified he would). The defense's decision to put Treadway on the stand, opening him to cross-examination, is a bold move that would seem to signal assurance.

>From what the court saw Monday, that confidence was well-placed. Questioned by Ascher, Treadway spoke firmly and easily and looked much of the time at the jury, his demeanor miles removed from Corba's awkward and dismal testimony. Ascher gave him the chance to state his case in answer to several outstanding questions jurors might have had. Asked, for example, why he did not terminate the Stern relationship in June 2002, once his concerns about it had grown urgent, Treadway said he was persuaded by Corba to give Stern another chance. Treadway said he firmly believed Corba, in his role as a money manager, would do nothing to jeopardize his investors' returns. “I was turned; he turned me around on that,” he said.

Treadway was somewhat less relaxed when cross-examined by SEC counsel Kathryn Pyszka. More on that tomorrow, when the defense wraps up its case. 

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