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Tuesday, April 23, 2019

SEC Ends Trading Inquiry of Mack and Pequot, Won't Bring Case


Date: Friday, December 1, 2006
Author: Otis Bilodeau, Bloomberg.com

(Bloomberg) -- The U.S. Securities and Exchange Commission told Morgan Stanley Chief Executive Officer John Mack and Pequot Capital Management Inc., a $7 billion hedge-fund manager, it won't accuse them of wrongdoing, formally ending an illegal-trading probe.

The SEC confirmed in writing that ``it has formally concluded its insider-trading investigation of Pequot,'' according to a Nov. 30 letter to investors from Arthur Samberg, founder of the Westport, Connecticut-based firm. ``The staff did not recommend to the commission that any action be taken against the firm or any of its employees.''

Mack received a similar letter during the past two days, according to Morgan Stanley spokeswoman Jeanmarie McFadden.

Gary Aguirre, a former SEC investigator, told a Senate panel in June that he had gathered evidence suggesting that Pequot might have profited by trading on inside information provided by Mack. Aquirre said he was fired in September, 2005, after SEC officials told him he couldn't interview Mack.

Mack and Pequot have repeatedly denied wrongdoing and said Aquirre's allegations were baseless. The SEC questioned Mack, 62, in July. Pequot spokesman Jonathan Gasthalter said today that he had no comment beyond Samberg's letter.

In October, Samberg said the agency had informed him that it would not bring an enforcement action against Pequot. Mack was also told informally at the same time that he wouldn't be charged.

Senate Questions

Aguirre's claim that his investigation was blocked because of Mack's political influence prompted questions from two Republican senators, Charles Grassley of Iowa and Pennsylvania's Arlen Specter.

Grassley, the Senate Finance Committee chairman, asked the Government Accountability Office in September to conduct a wide- ranging probe of the agency's enforcement unit. Specter, who heads the Judiciary Committee, has scheduled a Dec. 5 hearing to address enforcement of insider-trading laws and regulatory oversight of hedge funds.

John Heine, an SEC spokesman in Washington, declined to comment. The SEC has denied that politics influenced its handling of the Pequot probe.

Hedge funds are private pools of capital that let managers participate substantially in gains on the money invested. There are more than 9,000 hedge funds with more than $1.3 trillion in assets.

To contact the reporter on this story: Otis Bilodeau in Washington at obilodeau@bloomberg.net .