Gary Aguirre
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At last, securities regulators seem to be realizing that illegal insider trading is a way of life among operators of hedge funds. And so is lying to government investigators, concealing documents and emails, obstructing justice, and engaging in bribery and blackmail to cover up that insider trading.

There’s an important reason for this: if your dishonesty can stall the government’s investigation long enough, the statute of limitations may run out and you won’t be held criminally accountable for your insider trading. You might get nailed civilly for your sins, but all that means is that you may pay a multimillion-dollar fine, go out of business, get banned from the industry — and then retire to your mansion in the Hamptons with your billion-dollar treasure trove largely intact.

San Diego attorney Gary Aguirre is now tackling this very problem in a case he has been involved in for years. In fact, the Securities and Exchange Commission, which never wanted to pursue the plutocrats involved in the case, was forced to reopen the matter after Aguirre provided damning evidence last year.

On November 12, Preet Bharara, United States attorney for the Southern District of New York, Wall Street’s top cop, stated that “there is no greater way to send a message” to Wall Street miscreants than for the government to bring perjury cases against those who lie to the Securities and Exchange Commission, the agency that is supposed to ride herd on the securities industry but usually drops the ball — deliberately.

Aguirre, brother of former city attorney Mike Aguirre, took a job with the Securities and Exchange Commission early in the century. He had reason to believe that Pequot Capital Management, one of the largest hedge funds, had received inside information about a pending corporate acquisition. Pequot made a bundle when the purchase went through. Aguirre wanted to interview one of Wall Street’s muckiest mucky-mucks, who was close to the head of Pequot, and also close to then-president George W. Bush. Although the agency had just given Aguirre a high personnel rating, it suddenly switched course and fired him.

The agency didn’t realize it was up against a tiger. Two Senate committees studied Aguirre’s ordeal and cleared him, blasting the agency for sheltering Wall Street fat cats. The securities agency’s own inspector general studied the matter and came to the same conclusion, even recommending that Aguirre’s supervisors be disciplined. (They still haven’t been.)

But as all this happened, the statute of limitations ran out, and the insider traders got away with it — or thought they had. Aguirre kept working on the case on his own time and nickel.

Last year, he presented irrefutable evidence to the agency of another instance of Pequot’s egregious insider trading, this time involving Microsoft. After studying the information, the red-faced agency officially shut down Pequot this year, fined it and its chief $28 million, and agreed to pay Aguirre $755,000 for four years and ten months of salary and legal fees. By this time, Pequot had already closed down; $28 million was chump change to Pequot’s head, Arthur Samberg.

The agency also brought charges against David Zilkha, a former employee of Microsoft who had allegedly given Pequot lots of inside information about Microsoft — information that Pequot used to rake in millions.

In the spring of 2005, according to a Securities and Exchange Commission statement made at an administrative proceeding this year, the commission had begun looking into whether Pequot was getting and using inside information from someone at Microsoft. Commission staffers interviewed Zilkha. He concealed the fact that in the spring of 2001, he had received inside information on Microsoft’s upcoming earnings and passed it to Pequot, testified the agency. Zilkha had been obligated to produce documents related to this caper but had not done so. He had also concealed certain emails that contained material, nonpublic information that he had passed along to Pequot.

Later, Zilkha went to work directly for Pequot. According to emails unearthed by Aguirre, Samberg told Zilkha upon his arrival that he had already earned his keep.

The agency closed the investigation in 2006. But Zilkha got divorced, and his ex-wife disclosed the information. Then, the divorce papers reveal, five months after the agency closed the investigation, Samberg or Pequot paid Zilkha $1.4 million in two installments with a promise of another $700,000. Aguirre calls it “hush money.” The press (tipped off by Aguirre) picked up the news in 2008.

Then Aguirre wrote the agency in 2009. He said that the statute of limitations may have run its course for the criminal insider trading but not for the “active concealment” of the fraud. Aguirre presented evidence calling for criminal investigation of Samberg and Zilkha for witness tampering, bribery, and obstruction of justice during the government’s investigative process. This letter led to the fine and shutdown of Samberg’s operation (civil actions) and a civil suit against Zilkha.

But the Department of Justice has not moved criminally against Samberg and Zilkha, says Aguirre. “I am convinced that the failure of the Department of Justice to prosecute Zilkha and Samberg is an Achilles’ heel in the Department of Justice’s handling of the financial crisis,” says Aguirre.

He points out that media star Martha Stewart was convicted and served time for lying to government investigators, but Stewart was never charged with criminal insider trading. (She was charged with civil insider trading.) He points out that when the securities agency filed charges against Zilkha last May, the agency’s enforcement director said he was quite disturbed by Zilkha’s decision to withhold “crucial information about the scheme during an SEC investigation.”

“We are not able to comment whether these cases [Samberg and Zilkha] will be prosecuted criminally,” says Luke Cadigan, assistant regional director of the securities agency in Boston. He has been in charge of the matter all along. He would not answer other questions about the case.

Aguirre points out that Wall Street bigwigs are yawning at the news that insider trading is commonplace at hedge funds. Indeed, some Wall Street insiders are openly laughing at the government’s claim that it will pursue such hedge-fund thievery. “Why would you expect any other reaction from Wall Street?” says Aguirre. Until criminal prosecutors “put a few Wall Street elite in the slammer, Wall Street’s boys and girls will continue to thumb their noses at the securities laws, while angling the playing field more and more their way.”

If it’s too late under the statute of limitations to charge the crooks with criminal insider trading, it is not too late to charge them criminally with lying to cover up that illegal trading. But the statute of limitations on the lying by Samberg and Zilkha runs out in February, Aguirre warns.

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Comments

a2zresource Dec. 8, 2010 @ 10:40 a.m.

Thank you for continuing to follow this story. It helps to illustrate the problems of having government regulators who are too close to those that are regulated... or not regulated as in this case.

There is a widespread pattern of not-so-innocent parties referring to allegations against them as "baseless" when all that is protecting them is their own lack of disclosure, sometimes masked as "trade secrets" or other proprietary information. Sunshine can be an effective disinfectant.

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Don Bauder Dec. 8, 2010 @ 11:15 a.m.

Gary Aguirre has long fought the "revolving door" phenomenon by which Wall Street lawyers essentially run the SEC. Young attorneys go to work for the agency for a few years and become the head lawyer on a case against a crook. The crook's law firm offers the lawyer a $2 million a year job. The lawyer accepts and as a quid pro quo, the crook gets off. Then, the lawyer continues to put pressure on the SEC to get other slimy clients off. This phenomenon has been deeply involved in the Pequot case that Gary Aguirre has been pursuing. Best, Don Bauder

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SurfPuppy619 Dec. 8, 2010 @ 6:47 p.m.

The securities agency’s own inspector general studied the matter and came to the same conclusion, even recommending that Aguirre’s supervisors be disciplined. (They still haven’t been.)

Hahah......hold gov employees accountable! What a laugher that one is. Never happens. . . . . He points out that media star Martha Stewart was convicted and served time for lying to government investigators, but Stewart was never charged with criminal insider trading. (She was charged with civil insider trading.) ====================== IMO Martha Stewart did nothing wrong. She UNINTENTIONALLY made a mistake as to an action that happened years earlier.

I was never a fan of Martha Stewart until the gov railroaded her. Funny how standing up to a bully-which is what gov is- can make odd alliances.

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Don Bauder Dec. 8, 2010 @ 9:46 p.m.

I remember thinking at the time that Stewart's offense was definitely intentional, but I don't remember the details well enough to dispute your interpretation. Best, Don Bauder

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a2zresource Dec. 9, 2010 @ 12:44 a.m.

RE "Hahah......hold gov employees accountable! What a laugher that one is. Never happens":

When I was an RTC/FDIC intern in DC, I was introduced to a theory of government ethics that holds government employees should at least follow the Constitution, and the laws adopted pursuant to it. It wasn't part of the internship but in a course for those of us who were Minority Leaders Fellows, one of those ideals shining on the top of the hill.

Now, few people talk about it as a matter of law, but our Constitution does contain a Preamble that says some things about preserving the blessings of liberty to the people of the United States. It may not be realistic to expect government employees to behave this way, especially when some believe that they are the law and can change it at will, but it does help to set a standard of behavior. Beyond the Preamble, the Constitution and federal law SHOULD be something that protects the rights of people, so that they do enjoy those blessings.

When government employees are arbitrary in denying one's rights, we hold them accountable, responsible, and liable... or we get the kind of government that we've consented to by our own negligence.

That might seem harsh for a people who've had to put up with a whole lot of crap lately, but ultimately, it IS a matter of priorities. After all, we are the posterity of those who created our Constitution in the first place.

Once upon a time, a president resigned as he was being held responsible. Sometimes the system actually works.

Martha Stewart deserves her fans. I've become one. She's survived prosecution and rehabilitation, things that probably would have killed me.

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Don Bauder Dec. 9, 2010 @ 8:54 a.m.

The most interesting fracas today is the assaulting of MasterCard et al by hackers getting revenge for government thuggery in the case of Assange. Is this the beginning of the revolution wrought by the massive gap between rich and poor, which keeps widening because of deliberate government policy? If it is the beginning -- and I'm not prepared yet to say it is -- this time the little people have a weapon that can freeze the world. Best, Don Bauder

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Don Bauder Dec. 9, 2010 @ 5:46 p.m.

Yes, the income and wealth of the upper 1% to 2% is back to levels of the Gilded Age, and also back to 1929. The spread may be largest in our history. Best, Don Bauder

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SurfPuppy619 Dec. 9, 2010 @ 7:34 p.m.

The spread is worse today than it was in the 1920's.

Revolt is coming, pitch forks, tar, feathers and who knows what else.

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Don Bauder Dec. 9, 2010 @ 9:37 p.m.

As I have said, the revolt may already be here, led by computer hackers attacking companies that capitulated to the government in the Assange matter. Best, Don Bauder

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SurfPuppy619 Dec. 9, 2010 @ 10:43 p.m.

What the gov is doing to Assange, like I said earlier, is an assault on the values this country was built on-freedom of speech, the First Amendment and the free press.

That is a collateral assault on the people itself.

Today it is Assange, tomorrow everyone else.

If we let them succeed, we will be like China, Iran and all the other totalitarian nations that limit free speech to control their people.

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Don Bauder Dec. 10, 2010 @ 7 a.m.

I agree: the First Amendment is under attack in this case. Best, Don Bauder

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Twister Dec. 26, 2010 @ 6:56 p.m.

Ha! Now that I have just complained, I have, I hope, finally figured out how to get my responses into the right place.

SP: Now hear this! Keep saying this--over and over and over again. Until hell freezes over. One of the things thinkers forget is the necessity of repetition. Demagogues NEVER forget that.

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Don Bauder Dec. 25, 2010 @ 8:24 p.m.

The spread between the superrrich and the others may be the widest in history. Best, Don Bauder

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andrewj Dec. 12, 2010 @ 9:21 p.m.

I read the NY Times on the cyber attack--an interesting new kind of power. Freedom of information would be the right side to be on, though it's unclear what the anarcho-cyberists stand for specifically.

The stats on the gap between the poor and the rich -- look around.

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Don Bauder Dec. 12, 2010 @ 9:56 p.m.

The stats on that gap are available from multiple sources, Best, Don Bauder

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Don Bauder Dec. 19, 2010 @ 6:41 p.m.

Stats on the gap between the superrich and the rest of us are available. Best, Don Bauder

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Twister Dec. 19, 2010 @ 1:52 p.m.

Take all possessions away from "white-collar" über-robbers, and sentence them to a life of poverty. Have them scrub toilets for a few sou, and make them sleep on the street, be arrested for it, and eat cake crumbs out of the gutter.

When an express or implied trust exists, de jure or de facto, a greater crime is committed, not a lesser one, and a "legal" system that does not reflect this is morally bankrupt. Statutes are signposts of the failure of social control--but that failure is due to concentrated power, not power that circulates such that the highest true efficiency is realized.

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Don Bauder Dec. 19, 2010 @ 6:45 p.m.

Latter day robber barons belong behind bars. Best, Don Bauder

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Twister Dec. 19, 2010 @ 1:54 p.m.

How do I cancel my bank account and credit without shooting myself in the foot?

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Don Bauder Dec. 19, 2010 @ 6:46 p.m.

Cancelling your bank account and getting rid of access to credit aren't good moves these days. Best, Don Bauder

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a2zresource Dec. 19, 2010 @ 9:19 p.m.

Perhaps moving accounts to a credit union may be a step in the right direction?

There does seem to be a consumer trend to paying down high-interest credit card debt since the Crash of 2008. If paid off, then it may be a matter of discipline not to use credit unless truly necessary and with making more than minimal payments.

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Don Bauder Dec. 20, 2010 @ 7:46 a.m.

Consumers are deleveraging -- paring their debts. That's inevitable, and a good trend. Moving to a credit union has advantages, too. Best, Don Bauder

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Twister Dec. 25, 2010 @ 11:12 a.m.

To the Honorable Don Bauder, Gary Aguirre, Mike Aguirre, and all of the uncompromisingly honest people of this world who willingly stick their fingers in the dike against the sea of dishonesty, thank you for doing the right thing.

But I want to give special thanks to the young people I have the honor of knowing who struggle, in complete anonymity, living in shacks, getting law degrees the hard way, and being forced to leave the law largely because they don't "fit in."

I wish I knew a way to hook these people up into an effective counterforce to the determinedly evil.

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Don Bauder Dec. 25, 2010 @ 8:02 p.m.

What you're describing, Twister, is a society that is obsessed with greed. All societies are, but the U.S. began going off track in the 1980s, and the avarice seems to get worse each year. Best, Don Bauder

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Twister Dec. 26, 2010 @ 6:49 p.m.

Have a look at this short piece by a 12-year-old child--she knew in '92. "Only" a child. http://www.youtube.com/watch?v=5g8cmW... Think about needs and requirements as opposed to wants and desires, about limits and limitlessness, about reality and fantasy . . .

How much is enough?

You and all those of your minority (or is it merely a silent majority?) carry a huge burden, seemingly unappreciated, but little by little, your words, your ideas, even your habits of mind, seep inexorably into the fissures of the world, and in so doing actually move mountains. Not by earthquakes, perhaps, maybe not even soon, but for the rest of our lives, however measured or far away. You do matter; we all matter in some measure, and our own inner "god" takes that measure, for better or for worse. You set a high standard for the rest of us, Don, and we all are much, much, better for it.

PS: I still can't figure out how to get my follow-ups into the "right" place in the new Reader system. May I suggest a return to the old numbering system until it is de-bugged? I can see the value of distinguishing digressions (and the last thing I want to do is to kill digressions), but there must be a yet better way to organize trains of thought . . . I would like to presume that your elves are working away at this day and night, but I see no tangible effort, nor have I read any information to support my optimism. The present system is more confusing to me than the "old" one; in fact, I may end up missing relevant posts because navigation is so confusing. Still, others seem to have figured it out . . .

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Twister Dec. 26, 2010 @ 7:17 p.m.

Ok, mea culpa. Now that I've stumbled across the obvious, there's one little remaining squawk--the only way to preview a post is to go to the end--and in effect "start a new thread." Unless, of course, I err humanly. I hope Cicero isn't lurking . . .

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Don Bauder Dec. 27, 2010 @ 7:40 a.m.

You may have figured out something that I haven't, Twister. That's not surprising. I'm always too late with too little. Best, Don Bauder

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Don Bauder Dec. 27, 2010 @ 7:38 a.m.

Yes, it is frustrating for me when a comment that is meant to respond to a specific post winds up three posts below, and is seemingly irrelevant. I know our people are working on it. Best, Don Bauder

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Twister Dec. 26, 2010 @ 7:44 p.m.

I'm gonna flip-flop again. This system is still not as good as the old one, because one has to scroll through scads of stuff to find different sub-threads with current action--too laborious.

Maybe, maybe a feature that notifies a poster of replies? Even though I had to scroll a bit with the old system, at least I could find a number easily enough.

I'm still open to improvement, but this doesn't seem like it's there yet.

Explain?

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Don Bauder Dec. 27, 2010 @ 7:41 a.m.

No question. We're not there yet. Best, Don Bauder

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Twister Jan. 8, 2011 @ 9:13 p.m.

Just get them to retain the "do-over" feature from "Post a comment" in the "Reply" feature?

Maybe link all of an author's work together?

Have them look at all the clicks I have to do to follow just Bauder . . .

Set Bauder and all bloggers, stories, etc. up with a standard email notification of post option?

Are they into some baaad weed? Or do they need some baaaaad weed?

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