Wednesday, December 6, 2006

The Pequot Tempest on Capitol Hill

The continuing Congressional interest in the SEC's insider trading investigation of money management firm Pequot Capital came up in yet another hearing before the Senate Judiciary Committee.  The actual investigation has been closed by the Commission without any securities fraud charges being filed, but the conduct of the investigation and treatment of a former SEC attorney, Gary Aguirre, continues to fascinate Senators Arlen Specter and Charles Grassley.  Aguirre was terminated from his position in September 2005, and claims it was the result of issues he raised about alleged political pressure put on the Enforcement Division not to subpoena Morgan Stanley CEO John Mack about his contacts with Pequot at the time of suspicious trading by the firm.  Four current and former SEC supervisors testified that there was no political pressure to stop the investigation, but an e-mail (here) from another SEC supervisor at the time of Aguirre's termination said that "[s]omething smells rotten" regarding the failure to pursue the Pequot investigation. 

Insider trading investigations can be difficult to pursue if the trades were by a company that engages in thousands of transactions, and the amount of the gain is small compared to the value of the investment fund.  The Pequot case is unlikely to be revived because the SEC eventually took the testimony of Mack, who undoubtedly denied tipping.  Circumstantial cases are difficult to win, and the investigation on  Capitol Hill is facing the same problem when each side points fingers at the other without clear evidence to support the position of either.  (ph)

Insider Trading, Investigations | Permalink

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