Markets
|
* SEC case against former Microsoft employee continues
* Pequot, Samberg do not admit or deny SEC's allegations (Adds detail on former SEC employee, comment)
By Svea Herbst-Bayliss and Rachelle Younglai
NEW YORK/WASHINGTON, May 27 Defunct hedge fund firm Pequot Capital Management and its former chief executive officer, Arthur Samberg, have agreed to pay $28 million to settle insider trading allegations, U.S. regulators said on Thursday.
The Securities and Exchange Commission accused Pequot and Samberg of using inside information from a Microsoft Corp (MSFT.O) employee whom they were in the process of hiring.
Separately, the SEC brought an enforcement action against the former Microsoft employee, David Zilkha, for allegedly tipping off Pequot and Samberg. Zilkha has 20 days to respond.
The settlement follows a protracted congressional and SEC investigation into Pequot, which invested $15 billion at its peak and ranked as one of the most successful hedge funds.
U.S. senators had accused the SEC of closing the Pequot investigation and firing an SEC enforcement employee because the probe got too close to a powerful Wall Street banker.
Samberg surprised investors and employees last year when he announced plans to shut down his lucrative business, saying he was preoccupied by the reopened investigation.
The settlement comes as U.S. regulators crack down hard on insider trading and seven months after former hedge fund firm Galleon Group's founder was arrested.
"We are continuing to hold hedge fund managers accountable when they engage in insider trading," David Bergers, the head of the SEC's Boston office, said in a telephone interview.
According to the SEC complaint, Samberg sought information from the former Microsoft employee, Zilkha, who had accepted an offer to work at Pequot.
"I'm not as impressed with our research on msft. Do you have any current views that could be helpful? Might as well pick your brain before you go on the payroll!!" Samberg wrote in a February 2001 email to Zilkha confirming that he sent out the offer letter, according to the SEC complaint.
In April, while Zilkha was employed at Microsoft, Samberg e-mailed Zilkha and said he owned some Microsoft shares despite indications that the company could reduce its financial forecasts, and asked Zilkha for any "tidbits."
Zilkha told Samberg that he would get back to him on "MSFT ASAP."
Zilkha got information that Microsoft would meet or beat its quarterly earnings estimates and then passed that information on to Samberg, the SEC said.
Using the information, Samberg traded Microsoft's shares on behalf of funds managed by Pequot and reaped more than $14 million in illegal profits, the SEC alleged.
AGUIRRE PRAISED
In 2006, two senior senators started probing how the SEC handled the Pequot case and whether former SEC lawyer Gary Aguirre was wrongfully dismissed because he wanted to subpoena a top banker John Mack, who is now the chairman of Morgan Stanley (MS.N). Mack was never charged with any wrongdoing.
Senators Charles Grassley and Arlen Specter accused the SEC of lax enforcement and expressed concerns about improper political influence.
Although no longer at the SEC, Aguirre was relentless in pursuing the case against Pequot. He filed documents in courts seeking records from the SEC on how it justified its decision to shut down the Pequot investigation.
Grassley said the SEC-Pequot settlement bears out what Aguirre argued years ago.
Aguirre "lost his job because he spoke out against his supervisors putting up roadblocks to an aggressive investigation of Pequot," Grassley said.
"Aguirre had the courage to stand up and fight for what was right, and the next thing the SEC ought to do is hold someone accountable for how he was treated," Grassley said.
Pequot and Samberg agreed to settle the SEC charges without admitting or denying the civil allegations.
A spokesmen for Pequot and Samberg declined to comment. Zilkha's lawyer had no comment. Microsoft declined to comment.
(Additional reporting by Bill Rigby in Seattle and Matthew Goldstein in New York) (Reporting by Svea Herbst-Bayliss and Rachelle Younglai. Editing by Lisa Von Ahn, Tim Dobbyn and Robert MacMillan)
