Morgan Stanley's Mack Faces SEC Interview on Pequot

Date: Friday, July 21, 2006
Author: Bloomberg.com

Bloomberg) -- Morgan Stanley Chief Executive Officer John Mack will be interviewed by the U.S. Securities and Exchange Commission in connection with a probe into possible insider trading at hedge fund Pequot Capital Management Inc.

``Yesterday, the SEC contacted John Mack and asked that he be interviewed regarding the hedge-fund matter that has been widely covered by the media recently,'' Morgan Stanley spokesman James Badenhausen said in an e-mailed statement today.

Pequot, a $7 billion hedge-fund firm run by Arthur Samberg, last month said it was being investigated by securities regulators for possible insider trading. The company, which Mack briefly headed in June 2005 before joining Morgan Stanley, denied it did anything wrong.

Gary Aguirre, a former SEC lawyer, had been investigating Westport, Connecticut-based Pequot and has said he was fired on Sept. 1 after losing an argument at the SEC over whether he could take testimony from a well-known Wall Street executive.

The New York Times, which reported the Pequot investigation on June 23, said the executive was John Mack, citing unnamed government officials with knowledge of the allegations.

Mack, 61, became chairman and CEO of New York-based Morgan Stanley, the world's biggest securities firm by market value, in June 2005. He ``welcomes the opportunity to put to rest any issues surrounding this matter,'' according to Badenhausen's statement.

GE Acquisition

Aguirre has alleged an unnamed hedge fund made millions on insider trading, including $18 million on General Electric Co.'s $5.25 billion acquisition of commercial lender Heller Financial in 2001. Pequot was the hedge fund, according to Senate Finance Committee Chairman Charles Grassley. Grassley is reviewing Aguirre's allegations.

Pequot was once the world's largest hedge-fund group with $15 billion in assets. Samberg split with Pequot's No. 2 executive, Daniel Benton, in 2001. Samberg wanted to limit the firm's size, and Benton, then 42, was pushing for faster growth.

Pequot's assets under management stagnated after the breakup. Benton's Andor Capital Management climbed to about $8 billion before falling by at least 60 percent from market losses and client withdrawals.