Update 1:52pm - Like we told you several weeks ago, Art Samberg and Pequot Capital Management today agreed to settle insider trading charges with the Securities and Exchange Commission for $28 million.
The SEC Division of Enforcement's also brought a case against the alleged tipper, David Zilkha, a former Microsoft employee. That case will continue in an administrative proceeding before the Commission.
"The cases have two particularly troubling aspects — a hedge fund manager trading on illegal insider information, and his tipper source who withheld crucial information about the scheme during an SEC investigation," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Both are high-priority targets for SEC Enforcement."
Last May, Samberg announced he was closing Pequot, once one of the largest hedge funds on Wall Street, because the long-standing insider trading investigation that began in 2005 had been re-opened. At the time, he said the decision to wind down the $3 billion fund was “painful” but he could no longer focus on investing for clients. (Pequot’s assets under management peaked in 2000 at roughly $15 billion.)
In November 2006, the SEC closed its controversial investigation into whether Samberg traded on tips about General Electric’s takeover of Heller Financial in June 2001 for lack of evidence. (Read full closing report here and note on the bottom of page 3 that the SEC concluded Goldman Sachs had a policy of releasing analyst reports to preferred clients before they were published.)
As part of the initial investigation, the SEC also looked into possible insider trading in Microsoft shares based on tips Pequot received from Zilkha, who was eventually hired by Pequot in 2001.
Zilkha claims he never had inside information on Microsoft and was told by senior managers that he was not “important enough” to be restricted from selling his Microsoft options. In his conversations with Samberg, Zilkha says he gave his opinion on the direction of the company’s stock, but didn’t pass along anything material. Still, the information seemed to pay off, netting Pequot $2.1 million in profits, according to the SEC.
In late 2008, the SEC decided to re-open the Pequot case after members of the Senate Finance and Judiciary Committees discovered that Zilkha had been promised $2.1 million in payments from Pequot six months after the 2006 SEC inquiry was concluded. The evidence came to light when Zilkha’s ex-wife made a claim for the money three and a half years after their divorce was settled in May 2005. (Pequot has still not delivered the final $700,000 payment to Zilkha.)
Zilkha sent this email to DealBreaker:
The SEC has been in possession of my 1998 – 2009 computer for several months and is well-aware that I did not have the evidence supplied by my ex-wife in late 2008 during its 2005/6 investigation in which I fully co-operated with it, identifying every individual in the e-mails it obtained from Microsoft and presented to me. But it never asked me about the e-mails turned in by my ex-wife although these were obtainable, and perhaps even obtained, from Microsoft during its first investigation. My ex-wife did not turn me in during our divorce, but in Fall 2008, 3 ½ years after our divorce, when I sought a proper divorced father relationship with my children whom I have currently not seen since August 2009. The SEC is also aware that no one I approached at Microsoft had any inside information on the company, and is now allowing itself to be used in an ex-wife’s campaign of parental alienation by impugning my unblemished integrity.