Internal Report Blasts SEC’s Handing Of Hedge Fund Probe

Oct 7 2008 | 10:13am ET

An internal inquiry has found that the Securities and Exchange Commission erred in its investigation of alleged insider trading at hedge fund Pequot Capital Management, with disciplinary action recommended for three high-ranking officials at the SEC.

The agency’s inspector general, H. David Kotz, more or less sided with Gary Aguirre, the former SEC lawyer who claimed he was fired for seeking to question John Mack, the one-time Pequot chairman who now serves as CEO of Morgan Stanley, The New York Times reports. In a 191-page report, Kotz said h found evidence that “raised serious questions about the impartiality and fairness” of the SEC probe into Pequot, which ended without any enforcement action. Kotz’s report also blasted the “common practice” of giving lawyers for prominent outside clients access to high-level SEC officials when they had complaints about an investigation.

Aguirre said he was fired in September 2005 when he asked to take testimony from Mack. He also claimed that his superiors sought to impede his investigation when it got close to Mack. Kotz’s report did not attempt to discover whether insider trading had occurred at Pequot, focusing instead on Aguirre’s accusations about the SEC, finding that it allowed “inappropriate reasons to factor into its decision to terminate him.”

“There was a connection between the decision to terminate Aguirre and his seeking to take Mack’s testimony,” Kotz wrote.

The report echoes, in somewhat less bombastic tones, a Senate report issued last year that found the SEC had botched the Pequot case. One of the Senators who held hearings on the Pequot probe, Sen. Charles Grassley (R-Iowa), said Kotz’s report showed how the SEC’s failures have helped fuel the current market crisis.

“Gary Aguirre told it like it was and lost his job,” Grassley said. “Today, we’re all paying the price for an SEC culture of deference to Wall Street.”

Kotz recommended that the SEC take disciplinary action against Linda Thomsen, the agency’s director of enforcement, Mark Kreitman, the assistant director of enforcement, and Robert Hanson, Aguirre’s former supervisor. A spokesman for the SEC said its review process would determine whether any punishment was meted out.


In Depth

Q&A: Open Season For Closed-End Funds

Aug 29 2014 | 10:00am ET

When Maury Fertig and Bob Huffman, former Salomon Brothers coworkers, launched...

Lifestyle

Och Funds Women In Finance Initiative At U-M

Aug 28 2014 | 3:01pm ET

Och-Ziff Capital founder Daniel Och and his wife have made a "generous donation"...

Guest Contributor

Looking Ahead: What’s In Store For Managed Futures?

Aug 22 2014 | 12:52pm ET

The last five years were phenomenal for investors in equity indices. Will the next...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

The time was right

Commodities/Futures magazine launched at the precipice of a revolution in the futures industry—really a revolution in the idea of risk management—that would move it from a small niche industry to ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.