10 a.m., Aug. 30
SEC Charges, Forced into Open by San Diegan, Show Wall Street Corruption
The Securities and Exchange Commission today (May 27) put out a bland press release saying that Pequot Capital Management, once the largest hedge fund, and its head, Arthur Samberg, have agreed to pay $28 million to settle agency insider trading charges. Samberg has been barred from the investment business; he has already announced he is shutting down the hedge fund. The SEC would rather the public didn't learn the whole story, because it shows the corruption of hedge funds and the prostitution of the SEC. Much of this story has already been told in my columns and on this blog, but new information surfaced today.
San Diegan Gary Aguirre says he provided the information on this insider trading scandal to the SEC, FBI, two Senate investigative committees and the SEC's internal inspector. Originally, Aguirre, then an SEC employee, was looking into possible Pequot insider trading that might have implicated Wall Street powerhouse John Mack, head of Morgan Stanley. There was reason to believe that Mack, a former official of Pequot, had passed information on a pending corporate acquisition to Samberg, his close friend. Pequot made a bundle when the acquisition was consummated. Aguirre wanted to interview Mack. His boss told him that Mack was too powerful, and was a big donor to President George W. Bush. Law firms went far above Aguirre's head to the top of the agency on Mack's behalf. Aguirre was fired. He went to two Senate committees, along with the SEC's internal investigator; all studied the matter and agreed that Mack should have been interviewed and the firing was unjustified. In 2005, Aguirre found out that Samberg had a secret source within Microsoft who was feeding him information about that company. This is the matter that the SEC belatedly addressed today. However, the SEC closed the entire investigation into Pequot in 2006. It was shutting the door on 17 investigations of Pequot for classic insider trading in 19 companies, as well as specialized insider trading in another 101. Later, Aguirre came back with a copy of an email that was "too much for the SEC to ignore," he says. The agency was forced to look into the matter again.
Aguirre has included other emails in a public filing he recently made in a case he has against the SEC. Nine years ago, Samberg was getting ready to hire David Zilkha, a Microsoft employee. Wrote Samberg to Zilkha in 2001, "I'm not impressed with our research on [Microsoft.] Do you have any current views that could be helpful? Might as well pick your brain before you go on the payroll!!!" Later, Samberg specifically asked for "tidbits" from Zilkha about a specific Microsoft quarter, which had not yet been announced. Later, just before Zilkha joined Pequot, Samberg wrote him and said, "I shouldn't say this, but you have probably paid for yourself already!" Later, after Zilkha arrived, Samberg told his staff members that Zilkha had already earned his keep at Pequot. Aguirre gathered more emails in 2008. Today, the SEC finally acted on part of the investigation it had once closed. It brought a civil claim against Zillkha, stating that he concealed his actions during an earlier probe. Aguirre is pushing for more.