We expected today's Senate hearing on hedge funds to go rather badly for Gary Aguirre. The former SEC investigator publicly accused the agency of political favoritism for allegedly quashing his investigation into possible insider trading at Pequot Capital. Since then the SEC has re-opened its investigation and cleared both Pequot Capital and Morgan Stanley chief John Mack, who Aguirre had sought to subpoena as a possible source of the insider tips he suspected Pequot traded on.
But it's not going badly. At least not for Aguirre. Another investigator is scheduled to appear as a witness and expected to at least partially back-up his claims. And at least one of his supervisors did not seem very credible before the Senate committee, resorting to cliches such as telling the committee that "I do not recall" telling Aguirre that Mack was too well-connected to subpoena. Rather than making Aguirre look like a rogue agent on the warpath, the testimony is only raising new questions about the competence of the SEC.
The most devasting moment probably came when Arlen Specter revealed that Aguirre's supervisor had called Mack "another bad guy." DealBook catches the moment nicely:
In defending the handling of their investigation of Pequot Capital Management, the Securities and Exchange Commission has argued that former S.E.C investigator Gary Aguirre did not have enough evidence to justify questioning John Mack, now the chief executive of Morgan Stanley, in the case. So it was with great interest that Senator Arlen Specter, the committee’s chairman, pointed out a June 3, 2005, e-mail in which Robert Hanson, the branch chief of the Securities and Exchange Commission’s enforcement division who was Mr. Aguirre’s direct supervisor, wrote in part that “Mack is another bad guy (in my view.)”
Confronted with this e-mail by Mr. Specter during Tuesday’s hearing, Mr. Hanson said he could not remember why he that at that time. “In hindsight, it was probably to encourage, probably, the investigation to wherever it led,” he said. “And looking back, in hindsight, those words were probably inappropriate.”
S.E.C. Branch Chief Called Mack ‘Another Bad Guy’ [New York Times]