SEC Reopens Insider-Trading Probe
Thursday, January 8, 2009
The Securities and Exchange Commission has reopened an investigation into insider-trading allegations at a major hedge fund, two people familiar with the matter said yesterday.
Two years ago, the SEC ended an inquiry into $4.3 billion Pequot Capital Management after the agency determined there was insufficient evidence that the fund had inside information when trading Microsoft shares in 2001.
Last month, the SEC subpoenaed a hard drive containing what may be copies of correspondence between Arthur Samberg, who runs the hedge fund, and David Zilkha, a former Microsoft employee who later joined Pequot, according to two people familiar with the matter.
The hard drive is in the possession of Zilkha's ex-wife, Karen Kaiser, and it came to the surface during a divorce proceeding.
"My client . . . will cooperate with any law enforcement agency regarding this matter," said Mark Sherman, Kaiser's attorney. Sherman said she found "e-mails between David Zilkha and third parties that may be of interest to any investigating agency."
Calls to Zilkha's attorney last night weren't returned. Pequot spokesman Jonathan Gasthalter said the firm would "cooperate fully with all requests for information and are confident that Pequot's trading in Microsoft was at all times proper."
The case has grabbed the attention of Senate Republicans, leading to inquiries by Sen. Charles E. Grassley (Iowa), ranking member of the Finance Committee, and Sen. Arlen Specter (Pa.), ranking member of the Judiciary Committee. Documents obtained by Congress showed that Pequot paid $2.1 million to Zilkha in what the hedge fund has said was an employment matter.
Grassley said it was about time the investigation was restarted.
"Re-opening this case is overdue. . . . There are questions about why the SEC's investigation was shut down in the first place. I hope this isn't too little, too late," Grassley said in a statement.
An SEC spokesman declined to comment.
The case began to attract congressional scrutiny after SEC lawyer Gary Aguirre was fired from the agency in late 2005 and filed a complaint alleging that the Pequot investigation had been botched. In a letter to the SEC on Friday, Aguirre cited "new evidence" of the SEC's failure "to uncover critical evidence of securities violations by Wall Street elite."
Aguirre said he received new documents from an anonymous source; the documents could not be verified.