Whistleblower pans SEC for Pequot case

May 28, 2010 @ 3:57 pm

By Dan Jamieson

A former SEC attorney who once led the investigation of Pequot Capital Management Inc. — until he was fired in 2005 — claims that his subsequent efforts drove the Securities and Exchange Commission to pursue the hedge fund and its founder, Arthur Samberg, for insider trading.

The SEC yesterday announced a $28 million settlement with Mr. Samberg and the hedge fund over alleged illegal trading in Microsoft Corp. stock in 2001.

Pequot and Mr. Samberg did not admit any guilt in the settlement.

SEC officials said yesterday that it obtained its key piece of evidence in January 2009: An April 8, 2001, e-mail to the alleged tipster, Microsoft employee David Zilkha, from another Microsoft insider. The e-mail stated that the company would have its best first quarter on record, and came two weeks prior to the firm's public earnings announcement.

But former SEC attorney Gary Aguirre, who at one time oversaw the investigation of Pequot, claims that he actually produced this crucial e-mail for the SEC.

Mr. Aguirre said he was given the key e-mail in December 2008 by an anonymous source — via Mr. Zilkha's ex-wife, who had access to a computer hard drive used by Mr. Zilkha — because the source "didn't trust the SEC."

The informant, Mr. Aguirre said, had read an August 2007 Senate report that was critical of the SEC and its handling of the Pequot case.

Mr. Aguirre said he turned over the key e-mail in the Microsoft case to the staff of Sen. Arlen Specter, D-Pa., the FBI and then SEC Chairman Christopher Cox. He later reviewed the case with SEC staff under the agency's new chairman, Mary Schapiro.

Mr. Aguirre said the case should have been brought in 2006.

"A phone call to [Mr. Zilkha's] wife would have produced the hard drive" at any time, Mr. Aguirre said.

Other incriminating e-mails relating to the Microsoft trades were obtained in 2005 before he was fired, Mr. Aguirre said.

SEC spokesman John Nester declined comment.

Jonathan Gasthalter, a spokesman for Pequot, also declined to comment.

Henry Putzel, Mr. Zilkha's attorney, was not available for comment.

The SEC yesterday filed a separate case against Mr. Zilkha. Those charges are pending an administrative hearing.

Ever since he was fired, Mr. Aguirre has been prodding the SEC to bring a case against Pequot.

He has a pending suit against the SEC, brought under the Freedom of Information Act. He is asking for records relating to the Pequot investigation.

Mr. Aguirre was fired shortly after attempting to subpoena John Mack in another insider-trading case involving Pequot. Mr. Mack, who at the time was chairman of Credit Suisse Group AG, was a suspect in the Pequot case — but SEC enforcement officials refused to let Mr. Aguirre's team get Mr. Mack's testimony.

Mr. Mack, now the chairman of Morgan Stanley Smith Barney LLC, “had powerful political connections," Mr. Aguirre testified in 2006 — a factor that obstructed his team’s investigation.

Senate investigators found no evidence that Mr. Mack himself prevented or delayed his testimony. The SEC dropped the case involving Mr. Mack in November 2006 after questioning him that summer.

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