SEC Impartiality Questioned

A federal inquiry has concluded that the Securities and Exchange Commission should consider disciplining its director of enforcement and two supervisors for their role in handling an insider trading investigation that resulted in an SEC lawyer being fired for attempting to interview an influential Wall Street executive, according to The New York Times.

The NYT obtained a 191-page report that says the commission’s inspector general, H. David Kotz, found evidence that “raised serious questions about the impartiality and fairness” of the SEC’s investigation of possible insider trading at Pequot Capital Management, a large hedge fund.

Kotz also noted that lawyers’ clients were allowed high-level access to SEC officials when they had complaints about front-line investigators, according to NYT.

SEC lawyer Gary J. Aguirre, accused SEC officials of impeding his inquiry into possible insider trading at Pequot. He was fired in September 2005, shortly after receiving a merit raise, because he wanted to take testimony from John J. Mack, who was then CEO of Morgan Stanley and a close friend of Pequot’s founder, Arthur J. Samburg.

Kotz’s investigation did not focus on the insider trading allegations, but rather, Aguirre’s claims of being fired inappropriately.

No enforcement actions were made concerning the Pequot investigation, which is now closed. Kotz recommended possible disciplinary action against the director of enforcement, Linda Thomsen, Aguirre’s direct supervisory, Robert Hanson, and the assistant director of enforcement, Mark Kreitman.

Members of Congress did criticize the SEC and the commission eventually took Mack’s testimony—several days after the statute of limitations had passed, according to NYT. Kotz added that the commission had “gone through the motions.” SEC spokesperson, John J. Nester, said that the Pequot case was “aggressively pursued” and that while the investigation didn’t find any wrongful political decisions or prominence of defendants deterring the investigation, he noted that the review process of the SEC would determine “appropriate personnel actions.”