Pequot, Samberg To Pay $28 Million To Settle Insider-Trading Charges

May 27 2010 | 1:25pm ET

Pequot Capital Management and founder Arthur Samberg have settled insider-trading charges almost exactly one year after the renewed investigation convinced Samberg to close the one-time hedge fund giant.

The Securities and Exchange Commission today announced that it had simultaneously charged Pequot and Samberg with insider trading, and that they had agreed to pay almost $28 million to settle the charges. Neither Pequot nor Samberg acknowledged any wrongdoing.

The SEC also announced charges against David Zilkha, the former Microsoft Corp. employee who allegedly passed the confidential tips on to Pequot. Zilkha was briefly employed by Pequot, and the SEC’s renewed probe—launched last January, more than two years after it had first closed the case due to “insufficient evidence”—followed the revelation that Pequot or Samberg had paid Zilkha $1.4 million as part of a civil claim. Zilkha was fired just a few months after joining Pequot in 2001.

The payments came to light as part of Zilkha’s Connecticut divorce proceedings. Zilkha has not settled the SEC charges; the regulator said administrative proceedings against him continue.

“The cases have two particularly troubling aspects—a hedge fund manager trading on illegal insider information, and his tipper source who withheld crucial information about the scheme during an SEC investigation,” Robert Khuzami, head of enforcement at the SEC, said.

Indeed, if not for the divorce case, none of the alleged misdeeds may have ever come to light. The SEC found several e-mails indicating that Samberg sought information about Microsoft from Zilkha while the latter was still at the software giant on a copy of his hard drive made by his now-ex-wife, Karen.

In one e-mail, from Samberg to Zilkha in February 2001, the Pequot chief wrote that he “might as well pick your brain before you go on the payroll.”

According to the SEC, Pequot used information from Zilkha indicating that Microsoft would beat its earnings estimates for the first quarter of 2001, despite market rumors that the company would fall short. The complaint alleges that Pequot turned a $14 million profit on the insider-trade.

Pequot and Samberg will pay almost $18 million in disgorgement and prejudgment interest, as well as $10 million in fines. Samberg has also agreed to barred from association with an investment adviser, effectively kicking him out of the money management business, except to continue to wind-down of Pequot.

Samberg announced that he would shutter the hedge fund, which once managed $15 billion, last May. He said the SEC investigation and a parallel criminal probe “have cast a cloud over the firm and have become a source of personal distraction,” and indicated that he planned to retire. Pequot managed about $3.5 billion at the time.


In Depth

Kettera Q&A: The Advantages of Alternative Investment Platforms

Oct 28 2016 | 5:52pm ET

The past several years have seen a distinct push towards easier and cheaper access...

Lifestyle

Trump Attends 'Villains and Heroes' Costume Party Dressed As...Himself

Dec 5 2016 | 11:16pm ET

U.S. President-elect Donald Trump attended a "Villains and Heroes" costume party...

Guest Contributor

Nowhere to Hide: Why the Future of Asset Management Depends on Innovation

Nov 15 2016 | 6:55pm ET

Information technology has reshaped the asset management industry’s periphery,...

 

From the current issue of

Chicago-based independent futures brokerage and clearing firm R.J. O’Brien & Associates (RJO) has hired industry veteran Daniel Staniford as Executive Director, responsible for the firm’s institutional business development in New York and London.

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR