Attorneys for the former chairman of the PIMCO mutual funds group Stephen Treadway and PEA Capitals CEO Kenneth Corba contend that their clients broke no laws and, therefore, the SECs charge of fraud wont hold water in court. However, the attorneys did not dispute the fact that hedge fund Canary Capital had certain trading arrangements with the PIMCO funds.
Going to court could prove to be a big gamble for both sides, as Treadway and Corba could face significantly stiffer penalties if found guilty than they might have otherwise been subject to had they negotiated a settlement. However, the SEC is required to prove its case in court, which could carry its own challenges.
So far, the majority of the cases have been resolved through negotiated settlements. In the Putnam case, both the firm and the SEC threatened to go to court and even filed certain documents in preparation for a showdown, only to settle shortly before the first court date neared.
Three PIMCO affiliates settled market-timing charges with the SEC earlier this month. In many cases, firms have more of an incentive to settle with regulators quickly, to both limit the damage done by the negative publicity, and to put the scandal behind them. However, individuals often face banishment from the industry for years and irreparable damage to their professional reputation.