Full opinion text
DECISION AND ORDER MARRERO, District Judge. TABLE OF CONTENTS I. BACKGROUND...........................................................298 II. FACTS...................................................................300 A. THE PARTIES .......................................................300 B. THE ARRANGEMENT................................................303 C. CANARY’S TRADING ACTIVITY......................................307 1. Initial Investments in Select Growth and Other Funds ..................307 2. Trading Activity in Target, Growth and Innovation Funds; Investment in Select Growth Fund..................................308 3. Investments in Horizon Fund and Opportunity Fund....................309 4. Total Number of Round Trips in the Opportunity, Growth, and Target Funds....................................................309 5. Fees and Bonuses..................................................310 D. THE PIMCO FUNDS’ DISCLOSURES..................................310 1. The Prospectus and Other Disclosure Documents.......................310 2. Other Evidence of the PIMCO Funds’ Market Timing Policies ...........313 E. HARM TO SHAREHOLDERS AND TO THE FUNDS....................315 F. TERMINATION OF THE CANARY RELATIONSHIP....................317 G. ADDITIONAL FACTS..................................................320 III. MOTION TO STRIKE THE KOHLER DECLARATION......................321 IV. MOTIONS FOR SUMMARY JUDGMENT...................................322 A. LEGAL STANDARD..................................................322 B. DISCUSSION.........................................................323 1. Section 10(b) of the Exchange Act and Rule 10b-5......................323 (a) Disputed Issues of Fact Exist As to Whether a Material Misrepresentation or Omission Was Made........................324 (b) Material Issues of Fact Exist As to Whether Corba Made a Material Omission.............................................326 (c) Material Issues of Fact Exist As to Whether the Misrepresentations or Omissions Were Material..................329 (d) Scienter.......................................................331 (i) Treadway’s Scienter........................................332 (ii) Corba’s Scienter...........................................334 2. Aiding and Abetting Liability........................................336 (a) Primary Violations..............................................337 (i) Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder by PAFM, PEA, and PAD................337 (ii) Violations of Sections 206(1) And 206(2) of the Investment Advisers Act by PAFM and PEA...........................338 (b) Knowledge of the Primary Violations..............................339 (c) Substantial Assistance...........................................339 3. Section 17(a) of the Securities Act....................................340 4. Section 34(a) of the Investment Company Act..........................340 5. Section 36(a) of the Investment Company Act..........................340 (a) Treadway......................................................343 (b) Corba.........................................................345 6. Remedies .........................................................346 IV. ORDER ..................................................................346 The Securities and Exchange Commission (“SEC”) brought this action alleging violations of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77a et seq., Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78a et seq., Investment Company Act of 1940 (“Investment Company Act”), 15 U.S.C. §§ 80a-l et seq., and Investment Advisers Act of 1940 (“Advisers Act”), 15 U.S.C. §§ 80b-l et seq., by defendants Stephen Treadway (“Treadway”) and Kenneth Cor-ba (“Corba”), who served as executive officers of various investment services and mutual funds referred to as the “PIMCO Entities” or “PIMCO.” Pending before the Court are the SEC’s and Corba’s motions for summary judgment. Also pending before the Court is Corba’s motion to strike the declaration of Aaron Kohler (the “Kohler Declaration”) or in the alternative to compel compliance with the Federal Rules of Civil Procedure. For the reasons set forth below, the Court denies the motions of the SEC and Corba for summary judgment. The Court also denies Corba’s motion to strike the Kohler Declaration. I. BACKGROUND The SEC filed suit against Treadway, Corba and various PIMCO entities on May 4, 2004, alleging violations of various provisions of the federal securities laws. Familiarity with the allegations set forth in the complaint is assumed, as these were discussed at length in the Court’s previous decisions denying Treadway’s and Corba’s motions to dismiss. See PIMCO I, 341 F.Supp.2d at 454; SEC v. Treadway, 354 F.Supp.2d 311 (S.D.N.Y.2005) (“PIMCO II”). In sum, the SEC alleges that Treadway and Corba arranged and approved an arrangement granting Canary Capital Partners LLC special market timing privileges in its investments in certain PIMCO funds in exchange for long-term or “sticky asset” investments in other PIMCO funds, and that this arrangement conflicted with PIMCO’s public disclosures regarding market timing. While PIMCO publicly took a stance against market timing investment strategies, as reflected in both an anti-market timing statement in its Prospectus as well as systematic actions taken by PIMCO employees against many investors to deter market timing, at the same time it allowed Canary Capital Partners LLC to have special market timing privileges, which was materially misleading to investors. According to the SEC, Treadway’s and Corba’s activities thus violated the anti-fraud provisions of the securities laws, as well as the fiduciary duties imposed on them, as executive officers of several PIMCO Entities, under the Investment Company Act and the Advisers Act. As is to be expected, Treadway and Corba present vastly different versions of the events. These competing stories, as well as the evidence marshaled to support them, will be set forth below. In sum, however, Treadway and Corba point fingers at each other. Treadway portrays himself as an innocent victim of Corba’s deceptive actions. If Treadway is to be believed, he was a staunch defender against market timing abuses in the PIM-CO Entities, who was tricked by Corba into approving an arrangement that, unbeknownst to him, involved market timing. By his account, as soon as Treadway realized the truth of the matter, he took steps to limit and stop further abuses. In contrast, Corba denies any form of deception on his part, insisting that he fully disclosed the arrangement to Treadway and received his seal of approval. Even more fundamentally for purposes of his motion, however, Corba insists that he did not make any misleading statement or omission, and that he was not aware of any “disjunction” between the Prospectus and the Canary arrangement. Corba vigorously denies any responsibility for any portion of the Prospectus alleged to be misleading and claims that in light of the “green lights” he received from Treadway, he had no reason to know that the Canary arrangement might be problematic. As Cor-ba characterizes the Canary arrangement, it was a “global relationship” involving some active trading along with longer term investments, rather than a “quid pro quo” whereby Canary Capital Partners LLC received market timing privileges in exchange for the long-term investment of significant sums. Corba also requests summary judgment on the Investment Company Act claims on the ground that he is not an “investment adviser” as defined under that statute. To support their respective positions, each party has presented a voluminous record of evidence, including documents, deposition transcripts, and interrogatories. As explained below, the Court finds that the evidence presented demonstrates that disputed issues of material fact exist on every claim, precluding summary judgment for any party. II. FACTS A. THE PARTIES PIMCO Funds: Multi-Manager Series (the “PIMCO Funds”) was a registered investment company comprised of 45 separate investment series or mutual funds. The PIMCO Funds was governed by a Board of Trustees. The PIMCO Funds offered up to six classes of shares of each of its funds. The PIMCO Funds contracted with various providers for services necessary to operate the investment series or mutual funds. PA Fund Management LLC (“PAFM”), formerly known as PIMCO Ad-visors Fund Management LLC, is an investment adviser registered with the SEC with which the PIMCO Funds contracted to provide investment advisory and supervisory services, as well as administrative services, to the PIMCO Funds. The parties dispute to various degrees the level of responsibility PAFM retained vis-a-vis the PIMCO Funds and its Board of Trustees, and vis-a-vis certain sub-advisers to which PAFM sub-contracted certain services. Two agreements governed the relationship between the PIMCO Funds and PAFM: the Administration Agreement and the Investment Advisory Agreement. The Administration Agreement provided that “[s]ubject to the general supervision of the Board of Trustees,” PAFM was to “provide or cause to be furnished all organizational, administrative and other services reasonably necessary for the operation of the [PIMCO] Funds.” (Amended and Restated Administration Agreement (“Administration Agreement”) at 2, attached as Exhibit F to Declaration of Newton B. Schott, Jr., dated Sept. 30, 2005 (“Schott Decl.”).) This agreement further provided that as part of the administrative services provided by PAFM to the PIMCO Funds, PAFM would “prepar[e], fil[e], and arrang[e] for the distribution of proxy materials and periodic reports to shareholders of the Funds as required by applicable law” and “prepar[e] and ar-rang[e] for the filing of such registration statements and other documents with the SEC and other federal and state regulatory authorities as may be required to register the shares of the Funds and qualify the Trust to do business or as otherwise required by applicable law.” (Id.) Corba states that PAFM, as administrator, was specifically responsible for drafting, preparing, and disseminating all prospectuses and other disclosure documents for funds within the PIMCO Funds. Corba also states that PAFM never delegated to PEA or any other sub-adviser the responsibility for drafting, preparing, or disseminating the Prospectus. The SEC disputes this characterization of PAFM and its sub-advisers’ respective responsibilities, pointing out that Corba testified that he occasionally was asked questions on information to be included in the Prospectus and that PAFM occasionally had sub-advisers, including PEA, review and comment upon certain portions of the Prospectus — specifically, fund investment policies and restrictions, investment strategies employed by sub-advisers, and information about the sub-advisers. The Investment Advisory Agreement provided that, “[s]ubject to the general supervision of the Board of Trustees, [PAFM was to] provide general, overall advice and guidance with respect to the Funds and provide advice and guidance to the [PIMCO Funds’] Trustees. In discharging these duties [PAFM was to], either directly or indirectly through others (“Portfolio Managers”) engaged by it pursuant to Section 3 of this Agreement, provide a continuous investment program for each Fund and determine the assets of each Fund.” (Amended and Restated Investment Advisory Agreement (“Investment Advisory Agreement”) at 2, attached as Exhibit C to Schott Deck) The Investment Advisory Agreement also provided that PAFM could, “subject to its supervision,” hire others, including but not limited to its own subsidiaries and affiliated persons, “to render any or all of the investment advisory services that [PAFM was] obligated to render under this Agreement.” (Id. at 4-5.) In addition, the Prospectus noted that the shareholders of the funds managed by Corba had approved a proposal allowing PAFM to enter into new or amended agreements with sub-advisers without seeking approval of the shareholders. This proposal was subject to the conditions of an SEC order exempting the PIMCO Funds and PAFM from seeking shareholder approval of these contracts, which is otherwise required under the Investment Company Act. The order required the Board of Trustees to approve any such agreement, as is required by Section 15(a) of the Investment Company Act, and prohibited PAFM from entering into sub-advisory agreements with its affiliates unless those affiliates were substantially wholly owned by PAFM. (See November 2001 Prospectus at 50.) PEA was an affiliate of PAFM. As of January 1, 2002, PEA was wholly owned by PAFM. (See November 2001 Prospectus at 48.) PAFM did in fact employ a number of sub-advisers pursuant to the Investment Advisory Agreement. One of these was PEA Capital LLC (“PEA”), formerly known as PIMCO Equity Advisors LLC. PEA was an investment adviser registered with the SEC that served as an investment sub-adviser for ten mutual funds that were part of the PIMCO Funds, including the Growth Fund, Select Growth Fund, Opportunity Fund, Target Fund, and Innovation Fund. As an investment sub-adviser, PEA provided portfolio management services regarding these funds. The parties disagree over the level of independence and discretion enjoyed by sub-advisers in making investment decisions. The SEC states that PEA “ha[d] full investment discretion and ma[d]e[ ] 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.” (SEC R. 56.1 Statement ¶ 4.) While Tread-way does not dispute this, he declares it misleading, both because portfolio management was outsourced and because he states that his roles did not entail supervision of PEA’s investment determinations or day-to-day management. According to Treadway, because portfolio management was outsourced, PAFM did not have any responsibility for portfolio management. According to Corba, under the Investment Advisory Agreement, PAFM “took responsibility” for investment advice and guidance and “had ultimate responsibility to oversee any sub-advisers.” (Corba R. 56.1 Statement ¶¶ 6-7.) Per the November 2001 Prospectus, “[e]ach sub-advisor 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.” (November 2001 Prospectus at 47.) The SEC also points out that PEA was an affiliate of PAFM and was located at the same address as PAFM for at least part of the relevant period. PA Distributors LLC, formerly known as PIMCO Advisors Distributors LLC (“PAD”), is a broker-dealer registered with the SEC. PAD employed individuals responsible for monitoring trading activity to prevent or limit market timing in investments in the PIMCO Funds. PAD’S responsibilities were set forth in a Distribution Agreement between itself and the PIMCO Funds. Treadway served as PAFM’s Chief Executive Officer (“CEO”) and a Managing Director, PAD’s CEO and a Managing Director, and the Chair of the Board of Trustees for the PIMCO Funds. Corba served as PEA’s CEO, Chief Investment Officer (“CIO”), and a Managing Director. Corba also served as the portfolio manager for the PEA Growth and Select Growth Funds. Canary Capital Partners LLC was a domestic hedge fund; Canary Capital Partners Ltd. was an offshore hedge fund. Both were managed by an investment adviser, Canary Investment Management LLC, whose principal was Edward J. Stern (“Stern”). The Court refers to the Canary entities collectively as “Canary.” B. THE ARRANGEMENT According to the SEC, in October 2001, PEA was approached by two representatives, Ryan Goldberg (“Goldberg”) and Michael Grady (“Grady”), of the broker-dealer Brean Murray & Co. (“Brean Murray”) about the possibility of their client, Canary, entering into a market timing arrangement with the PIMCO Funds. These representatives then met with Cor-ba and John Cashwell (“Cashwell”), PEA’s former Senior Vice President of Institutional Marketing, in or around early November 2001, and proposed a relationship whereby (1) Canary would have approximately $100 million in trading capacity in some PIMCO Funds investment products at a rate of at least four round trips per month; (2) Canary’s investment would be no more than three percent of each fund in which it was invested; and (3) in exchange for this market timing capacity, Canary would provide a long-term investment of 25 percent of the value of trading capacity into another of the PIMCO Funds’ investment products. Subsequently, according to the SEC, ' Corba met with PEA’s managing directors and Cashwell regarding the proposed arrangement and informed them that PEA was entering into a market timing relationship. The terms permitted Canary to have $100 million of trading capacity in the Growth, Target, and Innovation Funds, with up to four round trips per month in each fund and the amount of money invested by Canary in each fund not to exceed three percent of each fund’s assets. In addition, in exchange for this timing capacity, Canary would make a $25 million long-term investment into the Select Growth Fund, which represented 25 percent of the overall trading capacity. According to the SEC, Corba determined that the $25 million long-term investment be made into the Select Growth Fund, which was a fund that he managed and which would double the size of the fund. Treadway does not dispute these facts, except for the use of the phrase “market timing arrangement,” but he characterizes them as misleading in that he had no knowledge of them. To the SEC’s recitation Treadway adds that the Brean Murray representatives sent Corba a letter dated November 2, 2001 setting forth what they believed to be the terms of the arrangement, and that Corba denies receiving the letter. The letter stated: We are proposing a relationship where our clients, Canary Capital and Trout Trading Management Co., has approval from you to trade on a short term basis in three PIMCO funds, PIMCO Target fund, PIMCO Innovation fund, and the PIMCO Growth fund. Our Proposal is capacity for up to three percent of the aforementioned funds, for trading on a short-term basis. Short term trading can be defined as trading four to five round trips per calendar month. Additionally Canary and Trout will make a commitment of long-term assets to either a bond fund, a money market fund or the portfolios that they are doing short term trading in. These clients are generally comfortable with depositing 25% of total assets into the long-term commitments. (See Letter from Ryan D. Goldberg to Kenneth W. Corba, dated Nov. 2, 2001, attached as Exhibit 27 to Declaration of Samuel Bonderoff, dated Nov. 10, 2005 (“Bonderoff Decl.”)) Corba strongly disputes these facts. Although he does not disagree that these meetings occurred, he contests the substance of'the conversations and all details of the proposed relationship. Most fundamentally, Corba disputes that any market timing arrangement existed with any specified terms. Corba characterizes the relationship between the PIMCO Funds and Canary instead as a “ ‘global relationship’ that would include active trading and longer term investments totaling somewhere between $50 million and $100 million” (Corba R. 56.1 Response ¶ 12.), with the longer and shorter term investments not tied to each other in any sort of quid pro quo. According to Corba, he was told that Canary would not trade more than three percent in any one fund and that the frequency of the trades would not exceed four round trips per month, and Treadway and Corba allowed the relationship to proceed on a “controlled and observable ‘trial basis’ that would permit termination at any time.” (Id.) Finally, Corba states that Cashwell, rather than Corba, acted as the chief facilitator of the Canary arrangement, and that Stern made the ultimate decision to invest in Select Growth. In or about January 2002, Corba met with Treadway to discuss the proposed relationship with Canary. What transpired at this meeting is disputed. According to the SEC, Corba told Treadway that a member of a wealthy and reputable family, Edward Stern, was interested in the PIMCO Funds and in establishing a long-term relationship with PEA; that Corba wanted to get Stern to invest in his Select Growth Fund; that Stern “was interested in ‘active trading’ that ‘could potentially run afoul’ of the PIMCO Entities’ market timing policies” (SEC R. 56.1 Statement ¶ 14); that the PIMCO Funds would be informed about Stern’s trades; and that Stern would not invest more than three percent into any one of the PEA-managed funds at any one time. According to the SEC, Corba needed Treadway’s approval to proceed because it involved a significant amount of money and the accommodation of market timing; furthermore, Treadway approved the relationship. Treadway disputes that he and Corba ever discussed a proposed market timing arrangement. According to Treadway, Corba did not describe the arrangement as market timing; instead, based on the information conveyed to him by Corba, Treadway believed that Stern wanted “a long-term relationship” but that “it was possible” that he might engage in “occasional ‘active trading’ under certain market conditions.” (Treadway R. 56.1 Response ¶ 13.) Treadway states that Corba did not tell him that Stern was intending to invest through a hedge fund such as Canary, which would have been a red flag to Treadway that Stern was a market-timer, nor did Corba tell Treadway that he was giving Stern permission to make four round trips per month. Instead, Tread-way asserts that Corba told him there would be certain periods when the market was choppy when the trading would be “pretty active” but that otherwise Stern’s investments would have “more long-term investment characteristics”. (Id. ¶ 14.) Treadway claims that he “reminded Corba of their fiduciary duty to protect their shareholders from harm.” (Id.) According to Treadway, Corba promised to closely monitor the trading to ensure that it did not harm shareholders, and to keep Stern’s investment in cash if necessary so that if trading appeared to be active it could be liquidated quickly, minimizing transaction costs; and Treadway and Cor-ba agreed that the trading would proceed only on a “trial basis” and would stop if it ever threatened harm to the shareholders. (Id.) Treadway also states that Corba did not need his approval and that he permitted the trading only because of Corba’s misrepresentations and omissions. Corba also disputes what transpired at the meeting. According to Corba, he did not tell Treadway that he wanted to get Stern to invest in his Select Growth Fund, but rather that Stern was interested in investing in the Select Growth Fund and the Horizon Hedge Fund. Corba disputes that he told Treadway that Stern was interested in “active trading” that “could potentially run afoul” of PIMCO’s market timing policies. (Corba R. 56.1 Response ¶¶ 13-14.) Finally, Corba states that the characterization is misleading in that Treadway’s approval was needed because he was the Chair of the PIMCO Board of Trustees, because those who monitored trading reported to him, because it involved a significant amount of money, because Corba did not know if Brean Murray already had a relationship with PIMCO, and because he did not know if the proposed trading was permissible. In February 2002, Canary executed its first transactions in the Innovation Fund. However, according to the SEC, Canary was forced to stop trading in that fund because its portfolio manager, Dennis McKeehnie (“McKechnie”), decided that the timing activity was too disruptive. The factual issues related to why McKech-nie wanted to terminate Canary’s trading in the Innovation Fund are disputed and discussed in further detail below. Nonetheless, according to the SEC, this termination precipitated additional meetings to discuss obtaining capacity in other PIM-CO funds. Thus, in March 2002, Corba and Cashwell met with Stern and the broker representatives to discuss Stern’s interest in obtaining additional capacity in other PIMCO Funds, as well as investing in a PIMCO hedge fund; Corba suggested the PIMCO Equity Advisors Horizon Fund LP (the “Horizon Fund”). The SEC alleges that Corba knew that Stern was disappointed about losing capacity in the Innovation Fund and suggested the Opportunity Fund instead. Accordingly, Stern met with Michael Gaffney (“Gaff-ney”), the portfolio manager for the Horizon and Opportunity Funds, along with Cashwell, and on March 25, 2002, Cash-well sent Corba an email stating that Canary “still wants in on Innovation and would like to invest a bit in Opportunity as part of the deal.” (SEC Rule 56.1 Statement ¶ 19.) Soon after, Canary invested $2 million in the Horizon Fund on a long-term basis and received $5 million in trading capacity in the Opportunity Fund. In addition, Canary obtained a waiver of the lock-up period for investments into the Horizon Fund in the event the market timing arrangement ended; this waiver was detailed in an April 4, 2002 letter from PEA to Stern that stated, “In the event the market timing relationship between Canary[ ] and PIMCO Funds ceases, PIMCO Equity Partners will waive the 12-month lock-up period, without penalty, for investments ... in the PIMCO EQUITY ADVISORS HORIZON FUND, L.P.” (SEC Rule 56.1 Statement ¶ 21 (quoting Letter from Taegan Goddard, Managing Director, Chief Operating Officer, PIMCO Equity Advisers, to Edward Stern, dated April 4, 2002, attached as Exhibit 22 to Schneir Deck).) Treadway does not dispute these facts but states that he did not have any responsibility for monitoring or distributing PEA hedge funds; that Corba did not tell him about Stern’s investment in the Horizon Fund; that he was not aware of Stern’s investment in the Horizon Fund until September 2003; and that he never had any knowledge of the waiver of the lock-up period. Corba disputes the timing as well as the content of the meeting between himself, Cashwell, Stern, and the broker representatives; he further disputes the SEC’s facts by specifically countering that Stern was not allowed to trade in Innovation again, that the investments in the Opportunity and Horizon Funds were handled directly by Cashwell and Gaffney; that the arrangement to invest in the Horizon Fund was worked out between Stern, Cashwell, and Gaffney and did not involve Corba; and that there was no quid pro quo regarding the Horizon and Opportunity Funds. Corba also states that the investments were “always presented as being part of a ‘broad’ or ‘global’ relationship” (Corba R. 56.1 Response ¶ 20) and that he was not involved in granting the waiver and did not learn of it until well after it had been granted. PEA received one percent of the total assets under management and a performance fee consisting of 20 percent of the net profits generated by the fund in annual fees from the Horizon Fund; PAFM received an advisory fee of 0.65 percent of net assets under management for the Opportunity Fund and paid a portion of these fees to PEA. C. CANARY’S TRADING ACTIVITY 1. Initial Investments in Select Growth and Other Funds From February 1, 2002 to February 8, 2002, Canary invested $25 million in long-term assets into the Select Growth Fund, almost doubling the size of the fund. Treadway does not dispute this fact but claims it is misleading in that he did not learn about the investment until much later. Corba does not dispute that $25 million was invested, but disputes its characterization as “sticky assets” and disputes that it was an “agreed upon” amount, even though the SEC points to a February 6, 2002 email sent to Corba by one of the Brean Murray brokers letting Corba know that “we still have $10 million to buy to reach our agreed upon number of $25 million.” (Email from Ryan Goldberg, dated Feb. 6, 2002, attached as Exhibit 16 to Schneir Deck (emphasis added); SEC R. 56.1 Statement ¶ 23; Corba R. 56.1 Response ¶ 23.) From February 4 to February 8, 2002, Canary also placed approximately $60 million into fixed-income and money market funds for timing purposes. 2. Trading Activity in Target, Growth and Innovation Funds; Investment in Select Growth Fund On or around February 8, 2002 Canary began timing activities in the Target and Innovation Funds. On February 12, 2002, Corba, Treadway, and others received an email notification from Steve Howell, one of the PAD employees who monitored timing activity regarding these initial transactions. From approximately February 8, 2002 through April 3, 2002, Canary traded extensively into and out of the Target Fund from other funds, including several fixed-income funds that were not parties to the Canary arrangement and which requested in March that the trading activity cease. Treadway does not dispute these events (other than objecting to the SEC’s use of-the phrase “special Canary arrangement”) but denies knowledge of them. Corba disputes these issues in part, stating that there was no “special Canary arrangement” but rather an “overall relationship that consisted of some controlled and monitored active trading by Canary in certain mutual funds as well as some long term investments in other funds,” and that he did not participate in any discussions relating to the fixed income funds. (Corba R. 56.1 Response ¶ 25.) From February 8, 2002 to February 21, 2002, Canary also traded in the Innovation Fund, but was forced to stop at the request McKechnie, the fund’s portfolio manager. According to the SEC, the Innovation Fund’s investment strategy was negatively affected by the extreme inflow and outflow of cash, causing McKechnie to conclude that Canary’s trading activity was disruptive to the fund. While Tread-way does not dispute these facts (although denying any knowledge of them), Corba heavily disputes them. According to Cor-ba, the Innovation Fund was not negatively affected by these trades and the trading was not disruptive. Rather, according to Corba, McKechnie requested that the trading cease because he “feared the potential trading might interfere with his unique, meticulous strategy for short-term cash management.” (Corba R. 56.1 Response ¶¶ 16, 26.) The SEC contends that because Canary was forced to stop trading in the Innovation Fund, its total timing capacity in the PIMCO Funds investments was reduced from the originally promised $100 million to approximately $60 million; as a result, on April 12, 2002, Canary lowered its long-term investment in the Select Growth Fund from $25 million to $20 million to reflect its lost trading capacity in the Innovation Fund. Corba contests the existence of any agreed-upon timing capacity, any link between the reduction in the Select Growth Fund investment and ability to trade in the Innovation Fund, and any quid pro quo between Canary’s longer and shorter term investments. When and what Treadway knew about the Select Growth Fund investment is in dispute. According to the SEC, Treadway learned from Corba in April or May 2002 that Canary had made a long-term investment into the Select Growth Fund. According to Treadway, he did not know for certain of this investment until at least Summer 2002, and he did not know that the Select Growth fund investment was different in nature from Canary’s other investments and that it would be exchanged for timing capacity in other PIM-CO funds. From April until November 2002, Canary timed the Growth and Target Funds and throughout this period, the broker representatives emailed Corba and others trade notifications for the purchases and redemptions involved in this activity. Treadway does not dispute these facts but denies knowledge of them. Corba does not dispute the purchases and redemp-tions, but disputes that these were “round trip exchanges” as defined in the Prospectus. Corba also does not dispute the email notifications, but states that these emails allowed PEA and PAD to monitor the trading to ensure that it did not cause any harm. 3. Investments in Horizon Fund and Opportunity Fund Canary also invested $2 million into the Horizon Fund on or around April 1, 2002. The SEC describes this investment as “sticky assets,” given in exchange for the ability to market time the Opportunity Fund. On April 11, 2002, Canary placed $ 5 million in the Opportunity Fund, and timed that fund until April 3, 2003. Corba does not dispute that a $2 million investment was made in the Horizon Fund but disputes that this investment was linked to investments in the Opportunity Fund. Cor-ba also states that Canary’s investments in the Opportunity and Horizon Funds were facilitated by Cashwell and Gaffney, not Corba. 4. Total Number of Round Trips in the Opportunity, Growth, and Target Funds According to the SEC, Canary conducted a total of 110 round trips; 100 of these took place from February to November 2002, and an additional 10 took place from December 2002 to April 2003. Specifically, Canary conducted the following round trip activity: (1) from February 2002 through November 2002, 40 round trips in the Target Fund, with an overall dollar volume of over $2.3 billion; (2) from April 2002 through November 2002, 28 round trips in the Growth Fund, with an overall dollar volume of nearly $1.8 billion; (3) from April 2002 through November 2002, 32 round trips in the Opportunity Fund with an overall dollar volume of approximately $300 million; and (4) from December 2002 through April 2003, 10 round trips in the Opportunity Fund, with an overall dollar volume of over $70 million. Treadway does not dispute these facts, although he denies knowledge of them. He also avers that the dollar figures are misleading because they include both purchases and sales, which according to Treadway is not an accepted or meaningful measure of trade volumes. Corba strongly disputes these facts. According to Corba, Canary moved money (1) into and out of the Target Fund 37 times, rather than 40 times; (2) into and out of the Growth Fund 25 times, rather than 28 times; and (3) into and out of the Opportunity Fund 30, not 32, times between April 2002 and November 2002, and 7, not 10, additional times between December 2002 and April 2003. According to Corba, only 7 of these trades — in the Target Fund — were “round trip exchanges” as defined by the Prospectus; the rest were purchases and redemptions, not exchanges. Corba also states that the overall dollar volume of trades is meaningless “because Stern never allocated more than $35 million to its trading” in either the Target or Growth Funds and not more than $5.2 million to the trading in the Opportunity Fund. (Corba R. 56.1 Response ¶¶ 29-30.) In addition, Corba states that the impact of this trading was “negligible” and that it did not cause the share turnover of the funds to exceed industry norms. (Id.) Finally, Corba states that the SEC failed to disclose that Corba’s name was removed from email trade notifications after November 2002 regarding the Opportunity Fund, and points to evidence that he says demonstrates that he knew nothing of the continued trading in the Opportunity Fund after November 2002. 5. Fees and Bonuses According to the SEC, the PIMCO Entities received $224,451 in advisory fees as a result of Canary’s trading and investment activity in the Innovation, Target, Growth, Opportunity, Select Growth and Horizon Funds. Treadway disputes the SEC’s treatment of “the different PIMCO Entities as a unit,” noting that he states in his deposition that he assumed advisory fees were generated, but that he did not know the amounts involved. (Treadway R. 56.1 Response ¶ 31.) Corba similarly disputes these facts on the ground that the $224,451 in advisory fees were paid to PAFM, not PAD or PEA. However, the evidence to which Corba cites, page 83 of the February 2002 Prospectus, indicates that while advisory fees were paid by the funds to “PIMCO Advisors,” i.e., PAFM, in cases where PAFM retained a sub-adviser, PAFM paid a portion of the fees it received to the sub-adviser. Moreover, neither Treadway nor Corba disputes the SEC’s earlier statement that PAFM received an advisory fee of 0.65 percent of net assets under management for the Opportunity Fund and paid a portion of these fees to PEA. Thus, while the distribution of the entire amount may be in dispute, it is clear that PAFM received advisory fees and that at least some portion of these advisory fees were distributed to PEA. According to the SEC, an incentive fee of $35,039 was also received as a result of Canary’s investment in the Horizon Fund. Treadway points out that the SEC does not state the recipient of the fee. Although Corba states that he strongly disputes the factual issues contained in the Paragraph 31 of the SEC’s Rule 56.1 Statement, which includes facts about the incentive fees, the only issues he specifically elaborates upon are those, addressed above, concerning the $224,451 in advisory fees; he does not point to any evidence concerning the incentive fees or explain why he might be disputing that incentive fees were received; accordingly, because the incentive fees are not specifically controverted, this fact is deemed admitted by Corba. In 2002 Treadway received, among other compensation, an $8 million bonus related to the PIMCO Funds purchases and sales that year. Although a portion of this bonus was attributable to Canary’s purchases and sales, Treadway asserts he did not know what portion of his bonus was so attributable. Treadway adds that the Canary trading accounted for only about three percent of his bonus, and that Canary originally traded via exchanges, which did not count as sales for purposes of his bonus calculation. Corba does not dispute the bonus, except to state that the SEC has no evidence that anyone received any compensation directly from Canary or that Canary’s investments were treated any differently from those made by other investors. D. THE PIMCO FUNDS’ DISCLOSURES 1. The Prospectus and Other Disclosure Documents While the text of the disclosures at issue is not disputed, the meaning of those disclosures is sharply disputed. The Prospectus contained the following language: 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 twelvemonth 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. Except as otherwise permitted by the Securities and Exchange Commission, the Trust will give you 60 days’ advance notice if it exercises its right to terminate or materially modify the exchange privilege with respect to Class A, B and C shares. (November 2001 Prospectus at 59; February 2002 Prospectus at 96.) The PIMCO Funds’ “Statements of Additional Information” and “Shareholder Guides” contained similar statements. From November 2001 to September 2003, there were only minor changes to this language not relevant here. Treadway signed the PIMCO Funds’ registration statements, which included these disclosures, that were filed with the SEC. Apart from the existence of these words in the Prospectus and similar documents, the parties agree on nothing with respect to the disclosures. According to the SEC, the Prospectus or other disclosure documents filed with the SEC set forth a clear anti-market timing policy limiting the number of round trips that investors could make. Thus, these documents were misleading for not disclosing the market timing arrangement with Canary or 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. In particular, the Prospectus did not disclose that the Select Growth Fund received a $25 million investment from Canary in exchange for timing privileges. Treadway disputes that the Prospectus categorically limited the number of round trip exchanges available to investors. He further disputes that these disclosures related only to market timing, stating instead that this language gave PAFM and PAD the discretion to determine whether any trading activity, including market timing or activity that might exceed six round trips in a 12-month period, should not be permitted because it was detrimental to shareholders. According to Treadway, the Prospectus’s reference to six round trips was merely to provide guidance regarding the underlying policy to investors, including putting them on notice that their accounts could be frozen, and to give PAD personnel a simple standard to use in their enforcement of the policy, but it was not itself the underlying policy. However, this six-round trip standard did not overrule the overall policy, which was dependent upon a determination of harm. Treadway does not dispute that Canary was not mentioned in the disclosure documents, but disputes the implication that Canary’s trading or the Canary arrangement should have been disclosed, stating instead that it was not required to be disclosed because the treatment of the Canary arrangement was consistent with the PIMCO Funds’ policy with respect to market timing. According to Treadway, the Prospectus required the PIMCO Funds to make a “judgment” whether frequent trading would “adversely affect” a fund and its shareholders. (Treadway R. 56.1 Response ¶ 33.) According to Treadway, since the overall policy was dependent upon a determination of harm, and PEA was monitoring Canary’s trading to prevent harm and the monitoring was successful, the policy was properly enforced as to Canary. Corba similarly does not dispute that the Prospectus contained the language excerpted above, and that other disclosure documents contained similar language, but disputes the meaning and implication of this. Corba points out that the above excerpt was surrounded by other language that describes the exchange policy in further detail, and states that this language must be read in full and in context with the rest of the 128-page Prospectus, particularly the adjacent sections of the Prospectus that related to purchases and redemptions as opposed to exchanges. Corba disputes that he had knowledge of the language of the exchange policy and states that the SEC has no evidence that he knew whether the Canary relationship was disclosed in the Prospectus. He further disputes these facts by pointing to his testimony that he was not involved in any discussions regarding disclosure of the Canary arrangement either in the Prospectus or to the members of the Board of Trustees, other than Treadway. Thus, Corba disputes that he knew that the PIMCO Funds discouraged market timing and that the Canary arrangement was an exception, or that he was aware of any conflict between the language of the exchange policy and Canary’s trading. He further states that he received approval to move forward with the Canary relationship from Tread-way, who did head the companies responsible for drafting the Prospectus and implementing the exchange policy, and based on his discussions with Treadway, Corba had no reason to believe the Canary relationship was in any way incompatible with the Prospectus. Finally, Corba has moved for summary judgment on the ground that he had no role in making any misleading statements or omissions and thus cannot be primarily hable under the securities laws. According to the SEC, Corba had authority over certain portions of the Prospectus — specifically, the content of the “fund summary statements.” These fund summaries contained information about each fund, including principal investments and strategies; investment objectives; focus of the funds; approximate capitalization range; approximate number of holdings; dividend frequency; principal risks; performance information; and fees and expenses. The SEC states that Corba had authority over these fund summaries by reason of his positions as CEO of PEA, portfolio manager of the Growth Fund, and portfolio manager for the Select Growth Fund. The SEC also states that Corba provided information concerning fund investment objectives and guidelines, fund holdings, and fund capitalization. Corba disputes that he had any authority over the content of any portion of the Prospectus and asserts that he did not provide any information for the Prospectus during the relevant time period. Corba states that PAFM and PAD, not PEA, prepared the Prospectus, that PEA employees’ participation in the preparation of the Prospectus was limited to “occasional review or discussion of limited information about PEA or about the funds PEA sub-advised” (Corba R. 56.1 Statement ¶ 20), and that he does not recall any discussion with PAFM about information to be included in the Prospectus in the relevant time period about the funds whose assets he managed. The SEC states that none of the PIMCO Funds prospectuses or other disclosure documents filed with the SEC disclosed the Canary market timing arrangement or 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, and in particular that the Prospectus did not disclose that the Select Growth Fund managed by Corba received a $25 million investment from Canary in exchange for market timing privileges. Treadway disputes not only the characterization of the arrangement as a “market timing arrangement,” but also that it should have been disclosed, based on his characterization of the policy as discretionary and dependent upon a determination of harm. Corba similarly disputes the characterization of the arrangement as one in which certain shareholders could make long-term investments in exchange for market timing, characterizes the exchange policy as one in which PIMCO retained the right to permit trading not deemed detrimental, and disputes that the arrangement should have been disclosed. 2. Other Evidence of the PIMCO Funds’ Market Timing Policies The parties also dispute the meaning of certain actions taken by PAD employees to enforce the PIMCO Funds’ policies on market timing. In 2002, PAD froze nearly 400 accounts 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 investments, and froze 317 accounts. Treadway does not dispute these facts but states that they are misleading because PAD froze accounts due to trading activity deemed harmful to shareholders, regardless of whether it involved market timing or frequent trading. Corba does not dispute these facts except to state that he knew nothing about PAD’s efforts to monitor trading activity. According to the SEC, PAD, in furtherance of the policy stated in the Prospectus, prevented some shareholders from performing exchanges, purchases, or redemp-tions; in some cases, this meant stopping trading before six round trips had been reached. PAD monitored trading patterns, including purchase and redemption activity, and in doing so, was able to identify some market timers; when it did so, it sent letters warning that they could not use PIMCO funds to execute market timing strategies. These letters stated that frequent transactions violated Prospectus policies and were detrimental to the PIM-CO Funds and harmful to shareholders. In addition, PAD instructed the transfer agent for the PIMCO Funds to block or freeze trades in market timers’ accounts. Treadway does not dispute these facts, including that in furtherance of the policy stated in the Prospectus, PAD prevented some shareholders from performing purchases and redemptions, but states that the SEC’s statements are misleading in that they omit that certain investors or brokers, including Robert Kargenian (“Kargenian”), Glen Gould (“Gould”), and Bill Orkin (“Orkin”), were permitted to invest in the PIMCO Funds even after they had exceeded six round trips in a 12-month period, because their trading was determined to be not harmful to shareholders. Treadway also adds that PAD automatically sent warning letters to registered representatives who had exceeded six round trips in a 12 month period, without consideration as to whether such trading was harmful to shareholders, and that once the letter was sent, its recipient had the chance to explain to PAD why it was not harmful; if the activities were determined not to be detrimental to shareholders, the warning letter recipient would be allowed to continue to trade. Treadway also adds that the language of many of the warning letters made clear that PAD had discretion in determining whether trading was harmful to shareholders. Corba also disputes that the warning letters were indicative of harm to shareholders from frequent trading and states instead that they simply were form letters sent to investors only because PAD had noticed a high frequency or magnitude of trades in an account, that those investors still had an opportunity to contact the PIMCO Funds and explain why their pattern of trading was not harmful to shareholders, and then, only when investors ignored the warning letter, would PAD freeze the account. According to the SEC, PAD maintained a log listing broker-dealers and registered representatives identified as market timers; the log identified the market timer and the action taken to deter that entity from continuing to engage in timing activity in the PIMCO Funds. While Treadway does not dispute this fact, Corba does in part. According to Corba, the log was kept primarily to assist in detecting accounts and investors engaging in deceptive practices to avoid detection by market timing monitors; those listed in the log had not been conclusively determined to be market timers but merely had been flagged as potentially engaging in timing activity, and those investors who were sent warning letters had the opportunity to explain why their trading was not market timing. According to the SEC, in some communications PAD interpreted the Prospectus disclosure as a strict prohibition against market timing. For example, in a November 6, 2001 email sent to a broker, one of PAD’s employees stated that “PIMCO’s policy with respect to market timers is very firm” and “[we] do not allow market timing.... Technically, this can be characterized as more than six round trip exchanges in any twelve month period.” (SEC R. 56.1 Statement ¶ 39 (quoting Email from Steve W. Howell to Justin F. Ficken, dated November 6, 2001, attached as Exhibit 53 to Schneir Decl.).) Tread-way disputes this statement, stating that the language used in any particular communication is not indicative of the substance or application of the policy; that the six round trip figure was used merely to provide guidance in enforcing the policy but was not itself the policy; and that many warning letters made PAD’s discretion clear. Corba also partially disputes the statement, stating that numerous witnesses have testified that they understood that policy to allow trading that was not deemed detrimental. E. HARM TO SHAREHOLDERS AND TO THE FUNDS In May 2002, PAFM advised the PIM-CO Funds Board of Trustees of the adverse effect that market timers had on mutual funds. These negative effects included (1) increased trading and brokerage costs; (2) disruption of portfolio management activities; and (3) additional capital gains that increased shareholders’ tax liabilities. After receiving this advice, the Board imposed a redemption fee on short-term redemptions and exchanges in certain classes of PIMCO Funds shares, in part to reimburse the shareholders for costs of market timing and to create a disincentive to market timing. The Board did not impose a similar fee on Class A shares, the retail class of shares traded by Canary. However, at a June 20, 2002 Board of Trustees meeting, Treadway received authority to impose redemption fees on Class A shares — 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. Nonetheless, due to “systems limitations” at the transfer agent, these redemption fees were not imposed on Class A shares until February 2004. Treadway adds that (1) he made the presentation to the Board regarding market timing and made the recommendation to impose redemption fees; (2) since the Canary investments were held by PEA in cash, the trading did not cause any of these transaction cost harms to PIMCO; and (3) the “systems limitations” were outside the PIMCO Funds’ control and prevented all mutual funds, not just the PIM-CO Funds, from imposing redemption fees on Class A shares at that time. Corba states that he disputes these assertions; however, he does not specifically controvert them. Instead, he adds additional details, such as that (1) he played no role in advising the Board nor was he aware of the advice given to it; (2) there is no evidence that the adverse effects of market timing discussed with the Board occurred as a result of Canary’s trading or that such harms were possible in Canary’s situation; (3) the limitations on imposing redemption fees on Class A shares were not overcome by the transfer agent until December 2003, and were imposed on Class A shares in February 2004; and (4) he neither knew about nor played any role in these events. According to the SEC, Treadway had approved the market timing arrangement with Canary prior to PAFM’s advice to the Board, and did not disclose the arrangement during the time the redemption fees were being considered. Instead, Tread-way did not disclose his knowledge of the Canary arrangement to the Board until approximately September 2003. Tread-way disputes that he approved of any market timing arrangement, and disputes the “implication” that he had a duty to make any disclosure, stating that the Board was responsible for considering overall policy decisions and did not typically discuss trading patterns of individual investors. (Treadway R. 56.1 Response ¶ 43.) Corba similarly disputes that Treadway was obligated to disclose the Canary investments to other trustees, on the basis that the market timing policy, which according to Corba was discretionary, had already been approved by the Board. Corba also states that he had no knowledge of whether or not Treadway disclosed the relationship to other members of the Board. According to the SEC, some of PEA’s managing directors and portfolio managers thought that the Canary trading was disruptive or potentially harmful to the PIMCO Funds and its shareholders. McKechnie testified that the trading was “disruptive” and that it caused him concern about the shareholders of the Innovation Fund. (Deposition of Dennis Paul McKechnie, dated June 16, 2005 (“McKechnie Dep.”), at 64:16-65:2; 66:14-25; 82:12-15, attached as Exhibit 97 to Schneir Decl.). Jeffrey Parker (“Parker”), a managing director and portfolio manager for the Target Fund, testified that the trading was “potentially damaging to ... existing shareholders.” (Deposition of Jeffrey D. Parker, dated February 28, 2005, at 210:21-211:4, attached as Exhibit 98 to Schneir Deck) John Schneider (“Schneider”), a managing director and portfolio manager for two PIMCO Funds that did not participate in the Canary arrangement, testified that “letting one client have a special deal over another client ... is not in the best interest of the investors in my fund.” (Deposition of John Schneider, dated June 29, 2005, at 41:4-13, attached as Exhibit 99 to Schneir Deck) Treadway does not dispute that these managing directors and portfolio managers made such statements but observes that they did not share their opinions with him. Treadway does dispute, however, that Canary’s trading ever had the potential to harm the PIMCO Funds or its shareholders, given that PEA executives were closely monitoring the trading and keeping the investments in cash. Treadway cites to the report prepared by his expert declaring that of the 432 days that Canary traded in the PIMCO Funds, monitoring would have shown that Canary had lost money and that shareholders had benefitted on 423 days of the trading. Treadway also states that Parker and Gaffney admitted that Canary’s trading did not cause any harm to their funds or their shareholders, and that in any event their opinions were not conveyed to Treadway. Corba strongly disputes that Canary’s trading was disruptive or potentially harmful to shareholders, stating that (1) the mere occurrence of market timing does not mean that shareholders are harmed or at risk of harm; (2) limits on Canary’s investments were effective at protecting from harm; and (3) the SEC does not distinguish between disruption to portfolio managers and disruption to shareholders. For example, according to Corba, McKechnie did not want to be bothered with managing the additional cash in his portfolio, but did not think shareholders were being harmed. According to the SEC, the Canary trading was the type of market timing that PAD prohibited for other investors; moreover, when such investors attempted to engage in such trading, they were sent letters stating that such trading was harmful. As an example, the SEC states that when Canary tried to market time a non-PEA PIMCO fund through Cockatoo Capital, a Canary entity that was not a party to the arrangement, PAD sent out a warning letter stating that the frequency of the transactions violated Prospectus policies and was detrimental to the PIMCO Funds and its shareholders. Treadway and Cor-ba both dispute that the Canary trading was the type of market timing prohibited for other investors, for the reasons, already discussed, regarding the allegedly discretionary nature of the market timing policy. Although neither disputes that Canary received a warning letter for the Cockatoo Capital trading, Corba states that because warning letters are not indicative of harm, there was nothing inconsistent about Canary’s receipt of a warning letter regarding his trading in Cockatoo Capital. Corba also states because the other market timers had disclosed their timing prior to engaging in it, PIMCO did not have an opportunity, as it did with Canary, to put procedures in place to protect long-term shareholders from harm. F. TERMINATION OF THE CANARY RELATIONSHIP A series of emails occurred in the time period leading to the end of the Canary relationship: (1) On March 25, 2002, Cashwell forwarded to Corba a March 10, 2002 email exchange between Stern and Cashwell. The correspondence discusses setting up a trading arrangement, that Cashwell had arranged a meeting for Stern with Gaff-ney, who managed the Horizon Fund, and that Stern had written to Cashwell after the meeting to state that he “likes the numbers a lot;” that “[gjiven the size of the fund, we will have a tough time doing more than a $2 million allocation right off the bat” but “would likely grow our exposure as the fund grows” — but'that