SEC Wants To Question Morgan Stanley Chief
Saturday, July 22, 2006
Federal regulators will interview Morgan Stanley chief executive John J. Mack within the next two weeks as part of an investigation into possible insider trading at the prominent hedge fund Pequot Capital Management Inc., the investment bank said yesterday.
The Securities and Exchange Commission contacted Mack on Thursday to request an interview stemming from its 18-month probe into whether officials at Pequot were tipped off in advance of a corporate merger by Mack or others.
Morgan Stanley spokeswoman Jeanmarie McFadden said that Mack, one of Wall Street's best-known executives, "welcomes the opportunity to put to rest any issues surrounding this matter." She added that there is "no evidence whatsoever that John engaged in any misconduct."
The investigation of Pequot, a $7 billion investment fund based in Connecticut, drew widespread attention after Gary J. Aguirre, a former SEC enforcement-unit lawyer, claimed he had been fired under political pressure for insisting that the agency depose Mack, an energetic fundraiser for the Bush administration.
News of the regulators' request came four days before the Senate Banking Committee is scheduled to hold a hearing to examine regulation of the fast-growing, $2.4 trillion hedge fund industry. Among the witnesses expected at that proceeding is SEC Chairman Christopher Cox.
Once the province of wealthy and sophisticated investors, hedge funds have come under closer scrutiny from regulators, who worry that the loosely regulated investment pools are increasingly exposing pension funds and average investors to steep risks. Investigations have uncovered evidence of trading violations and related trouble at nearly 80 funds.
Last month, a federal appeals court in Washington cast federal oversight of the funds into upheaval after it tossed out an SEC rule requiring fund advisers to open their books for inspection. The agency is considering its options even as news reports suggest that some advisers have filed papers attempting to deregister from the SEC's authority.
Yesterday, the Government Accountability Project, which represents Aguirre, issued a statement criticizing the agency for the delay in its interview process. Aguirre testified before the Senate Judiciary Committee last month that Mack, the chief executive of Credit Suisse First Boston from 2001 until June 2004, had been the "top possibility" on his list of people who might have leaked nonpublic information to Pequot about General Electric Capital Corp.'s purchase of Heller Financial in 2001.
Aguirre said that Credit Suisse officials had access to client information on several pending mergers. Mack, a friend of the head of Pequot, Arthur J. Samberg, also invested in and served for a time as chairman of the hedge fund before taking the top job at Morgan Stanley last year.
Aguirre told lawmakers last month that his investigation came to a "grinding halt" after he clashed with superiors about his plan to depose Mack. The agency's inspector general has said that he did not find evidence to support those allegations. But Aguirre's attorneys said yesterday that they had been notified that the inspector general had reopened his investigation and was seeking to interview Aguirre. Aguirre recently sued the SEC for access to employment records and other materials.
Jonathan Gasthalter, a spokesman for Pequot, said yesterday that "at all times, Pequot's securities trading has been entirely proper and not based on insider information."
Pequot has not received notice that the SEC intends to file an enforcement action, according to one source familiar with the case who spoke on condition of anonymity because he was not authorized to speak publicly.