Pequot Federal Investigation - Insider Trading

Discussion in 'Wall St. News' started by flytiger, Feb 12, 2009.

  1. Exclusive
    Criminal Probe in Pequot Case
    by Scot J. Paltrow Feb 12 2009
    Prosecutors have started interviewing witnesses and subpoenaing evidence in an investigation of potentially illegal insider trading at a major hedge fund.
    Arthur Samberg
    Pequot Capital chairman and chief executive Arthur J. Samberg.
    Photograph by: Sipa Press

    Federal prosecutors have opened a criminal investigation related to possible insider trading in Microsoft stock by Pequot Capital Management, the hedge fund run by Arthur Samberg, the transcript of a recent court hearing shows.

    The U.S. Attorney's Office in Manhattan is leading the criminal investigation with help from the Federal Bureau of Investigation, according to information in the transcript and lawyers involved in the case.

    As Portfolio.com reported in January, new evidence of more than $2 million in payments from Pequot to a former Microsoft employee had already prompted the Securities and Exchange Commission to reopen its civil investigation of the trading. The agency had closed the probe in 2006 without taking action.

    That original SEC investigation, which also had looked into whether Samberg had acquired inside information on a different company from Morgan Stanley CEO John Mack, received considerable public criticism after it was closed. The SEC fired its lead investigator on the case, who had pressed to keep the investigation going.

    Subsequent reports by Senate committees and the SEC's own inspector general concluded that the agency shouldn't have closed the case, and that officials had acted improperly by firing the lead investigator.

    Existence of the criminal investigation was disclosed January 28 during a brief divorce case hearing in a Stamford, Connecticut, state court. Portfolio obtained the transcript late yesterday.

    The divorce case involves David Zilkha, a former Microsoft employee who later worked for Samberg, and who was suspected in the original SEC inquiry of having been a conduit of inside information about Microsoft to Samberg in 2001.

    During the hearing, Jill Blomberg, lawyer for Zilkha's ex-wife, Karen Kaiser, told Superior Court Judge Michael Shay that Kaiser was scheduled to meet federal officials to answer questions relating to an investigation of Samberg and David Zilkha.

    "The U.S. Attorney, the FBI, and the SEC have contacted my client, and she's scheduled to appear before them next week," Blomberg told the judge in the January 28 hearing. "There is an investigation, You Honor, into Mr. Zilkha's involvement with Mr. Arthur Samberg and with Pequot Capital."

    The lawyer added that the SEC had subpoenaed some computer equipment that had once belonged to Zilkha, and that Kaiser had turned it over "to the federal investigators."

    Two lawyers involved in the case today confirmed that the FBI and federal prosecutors have been interviewing potential witnesses and have obtained records relating to Samberg and Zilkha.

    It was recently disclosed that Kaiser had obtained the hard drive from Zilkha's personal computer when they were still married. It contained e-mail exchanges between Zilkha and a Microsoft employee that appear to show Zilkha soliciting confidential information about Microsoft's finances.

    The dates of the e-mail exchanges appear to coincide with key dates in the SEC's original insider trading investigation, when Zilkha was communicating with Samberg and when Pequot made highly profitable trades in Microsoft securities in advance of an earnings announcement.

    Several months ago, in personal financial statements that Zilkha is required to file with the Connecticut court, he disclosed that Samberg had recently paid him $1.4 million, and had promised an additional $700,000 by April 2009.

    The payments raise questions because Zilkha had last worked for Samberg in 2001 and had had no known contact with him after that. When U.S. Senate investigators learned of the payments last December, Senator Charles Grassley, Republican of Iowa, publicly called for the SEC to reopen its investigation, and to look into whether the recent payments by Samberg may have been improper.

    In response to direct inquiries from Senate investigators, Samberg's lawyers said the payments were part of a compensation agreement.

    Jonathan Gasthalter, a spokesman for Samberg and Pequot, said he wouldn’t have any comment.

    It's unclear if the U.S. Attorney and FBI are looking into the suspected inside trading, into whether the payments to Zilkha may have been bribes or some other form of illegal compensation, or into possible perjury by individuals who testified under oath during the initial SEC investigation.

    Janice Oh, a spokeswoman for the U.S. Attorney's office in Manhattan, declined to answer any questions. She said that it is office policy to "neither confirm nor deny the existence of investigations."

    Henry Putzel, a lawyer for David Zilkha, said "I have no comment except to say that Mr. Zilkha has engaged in no wrongdoing."



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  2. I think Clouseau can see where this is headed:

    That original SEC investigation, which also had looked into whether Samberg had acquired inside information on a different company from Morgan Stanley CEO John Mack, received considerable public criticism after it was closed. The SEC fired its lead investigator on the case, who had pressed to keep the investigation going.

    And then:

    It's unclear if the U.S. Attorney and FBI are looking into the suspected inside trading, into whether the payments to Zilkha may have been bribes or some other form of illegal compensation, or into possible perjury by individuals who testified under oath during the initial SEC investigation.

    It was on DEC 6, 2006 where Specter accused several SEC officials of perjury in a Senate Judiciary Hearing. You can see, in hindsight, what we were screaming about. The SEC was running interference for the mess we currently find ourselves in.
     
  3. On a relative scale, I always thought of Pequot as one of the more credible.
     
  4. AGuirre's affadavit was fascinating.

    As I remember, Samberg had been ill, and he and is partner split, and he now had half the assets. He needed a "hit".

    Then, there is this thing in there about Heller/GE. after that score, Mack was allowed into a special deal, not all Pequot guys wanted him in. He put up 5mm, and walked in a very short period of time with 15. They are that good.

    Two stories today, SAC, Chanos, Samberg........ they'll come fast and furious now, with the SEC gutted liked the wormed toad it was.
     
  5. patchie

    patchie

    It had to resort to this after the SEC looked so inept before Congress.
     
  6. Wow, only a decade late.

    Gee, you think that the current Pequot is just a shell ready to be made a scapegoat while the real perpetraitors, like John Mack, have made their money & moved on?
     
  7. What in the world are you talking about? Do you have the slightest idea about the mess that this country is in?

    SEC has nothing to do with it.
     
  8. patchie

    patchie


    What in the world are you talking about? This mess we are in is centered around fraud, greed, and Wall Street irresponsibility. While the SEC is not responsible for all of these areas they certainly play a crucial part in some.

    If people manipulated these markets exacerbating the panic and thus exacerbating the problems in our economy is that the SEC's fault? How about the economic impacts of Bernie Madoff, is that the SEC's fault? We are seeing a ponzi scheme of the week exposed and the SEC admits the values of the fraud are increasing, is that the SEC's fault?

    Tell me why the SEC carries no blame and that we should ignore them.
     
  9. This has the smell of a prosecution that ends with people going to jail. I wouldn't want to be a defendant in this type of case in this climate either.

    Basically, this will be a barometer of whether Obama will continue with business as usual, letting the big fish skate, or whether they will start to put people in jail. This Pequot mess really fries me, because an SEc attorney lost his job and had his caeer and life ruined because he naively believed in doing his job. The only real justice here will come if they force the Pequot people to rat out the SEC guys they "convinced" to deep six the earlier investigation. Put them all in jail.

    Of course, I have zero confidence in a Justice Department headed by Eric Holder. One phone call from Bill clinton and he will drop the whole thing.
     
  10. It's hard to swallow that there are more psychotic morons like flytiger out there.

    SEC has NOTHING to do with the banking system, that's the Federal Reserve which made the changes for the wonderful Level 3 assets.

    SEC was always in bed with Wall Street and was designed as such from the start. If you cannot get that through your head, then you're always going to be frustrated by what happens. People that work in the industry and have a sense of street smarts view the SEC as a parasite which simply protects the Wall Street elite. It has been like this from day one.

    You know what the real problem is? People like you. You can't & won't take responsibility, you won't think for yourself and feel entitled to a nanny which makes sure everything is fine & dandy for you. The funniest part is that you expect Wall Street and the wonderful politicians to do this for you but then wonder why crap like this happens. Meanwhile you end up hampering those who have the ability to think for themselves.
     
    #10     Feb 13, 2009