Agreement
S.E.C. settles with a former lawyer
The Securities and Exchange Commission has agreed to pay $755,000 to settle a wrongful termination suit filed by a former staff lawyer at the agency who was abruptly fired in 2005 during an investigation into possible insider trading by Pequot Capital Management, a giant hedge fund, and its co-founder, Arthur J. Samberg.
The investigation into Pequot's trading ended in 2006 without a case being filed. But the former staff lawyer, Gary J. Aguirre, accused his superiors of misconduct in the case, bringing criticism from Congress and embarrassment to the S.E.C.
Mr. Aguirre began investigating trades in more than a dozen securities by Pequot and Mr. Samberg in 2004 but was dismissed while on vacation a year later after a disagreement with his superiors over how to proceed.
His pursuit of the insider-trading case against Pequot and Mr. Samberg was thwarted by high-level S.E.C. officials, Mr. Aguirre contended, when he tried to interview John J. Mack, a friend of Mr. Samberg's and the incoming chief executive of Morgan Stanley. Mr. Aguirre was fired soon after complaining to a superior about being barred from interviewing Mr. Mack about certain Pequot trades.
The settlement appears to be the largest disclosed by the Merit Systems Protection Board, the federal agency that oversees such cases. The $755,000 represents Mr. Aguirre’s pay for the four years and 10 months that have elapsed since he was fired. The settlement, which also covers lawyers' fees, does not represent a finding of wrongdoing by the S.E.C.
Mr. Aguirre's claim was filed in 2007 as a whistle-blower reprisal action. The settlement was approved Tuesday by a judge with the Merit Systems Protection Board. Mr. Aguirre agreed to drop two related lawsuits against the S.E.C. in the deal.
Although the S.E.C. interviewed Mr. Mack much later about the Pequot trades, it closed the investigation begun by Mr. Aguirre in October 2006 without taking any further action.
Last month, however, the S.E.C. filed an insider-trading lawsuit against Mr. Samberg and Pequot involving trades that Mr. Aguirre had identified as suspicious in his 2005 investigation. Mr. Samberg and Pequot agreed to settle the recent S.E.C. case without admitting or denying the allegations. They returned $18 million in profits and paid $10 million in penalties.
Mr. Samberg also agreed to be barred from working as an investment adviser; he had already been winding down Pequot, which was once the world’s largest hedge fund, with $15 billion in assets.
The circumstances surrounding Mr. Aguirre's termination have been the subject of investigations by the Senate Judiciary Committee, led by Arlen Specter, Democrat of Pennsylvania, and the inspector general of the S.E.C. Both inquiries were critical of S.E.C. actions in the initial Pequot investigation and the matter involving Mr. Aguirre. His accusations were first made public in an article in The New York Times in June 2006.
Senate investigators' in-depth report on the matter cited delays in the S.E.C.'s investigation of Pequot's trades and the disclosure of delicate information by high-level agency officials to lawyers representing those under scrutiny in the investigation.
"It's a shame the team I worked with at the S.E.C. did not get to complete the Pequot investigation," Mr. Aguirre said in a statement. "The filing of the case in 2005 or 2006, before the financial crisis, would have been the right message at the right moment for Wall Street elite: the S.E.C. goes after big fish too."
A spokesman for the S.E.C., John Nester, said, "The settlement resolves all outstanding litigation between the parties and reflects the agency's determination to focus on its core mission of protecting investors."
Charles E. Grassley, the Iowa Republican who oversaw the Senate inquiry into Mr. Aguirre's allegations, said: "After Gary Aguirre's five-year battle with the S.E.C., this settlement sure sounds like vindication. Three years ago, our Senate inquiry concluded that his termination appeared to be reprisal for speaking out against the S.E.C. pulling its punches with Wall Street. It's encouraging to see the dispute finally resolved."
(Published by The New York Times – June 29, 2010)