We've been pointing out for a long time that the really (potentially) explosive issue raised by former SEC investigator Gary Aguirre was not the now-officially dismissed suspicions on insider trading by Pequot Capital or illegal tipping by John Mack, but the still largely univestigated charges of favoritism at the SEC. Recall that Aguirre claimed he was fired from the SEC for trying to subpoena John Mack, who was then about to become the top man at Morgan Stanley. Now the mainstream media, for reasons of its own, has enjoyed playing up Mack's connections to the Bush administration but a more relevant fact is probably his status as the head of a major Wall Street bank. This raises the fear that the SEC has been captured by the very industry its supposed to regulate. (By the way, even this might be too optimistic, since the words "been captured" imply that the regulatory agency was not created, owned and operated by the largest investment banks right from the start.)
In today's Wall Street Journal, the Senate's Finance Committee chairman Charles Grassley says that this is precisely the matter on which the committees investigation is focused.
Your Dec. 8 editorial "The Pequot 'Scandal'" leaves the impression that Gary Aguirre and I are the only two people concerned about the way the SEC handled the Pequot investigation. In fact, Mr. Aguirre's concerns have been echoed by both former and current SEC officials, who provided candid testimony to our committees.
The focus of the Senate investigation I'm conducting with Sen. Arlen Specter (R., Pa.) isn't John Mack and Pequot; rather, it is whether the SEC retaliated against one of its lawyers and whether it wields an even hand in looking out for investors big and small. Our review is evidence-based, and so far the evidence suggests the Pequot investigation was fraught with problems, Mr. Aguirre's termination is suspect, and the inspector general failed in his duty to conduct a thorough and independent inquiry.
Sen. Chuck Grassley (R., Iowa)
Committee on Finance
An SEC Investigation Fraught With Problems [Wall Street Journal]