The SEC’s Inspector General has concluded in a 191-page report that there is evidence “rais[ing] serious questions about the impartiality and fairness” of the SEC’s investigation of possible insider trading at Pequot Capital Management, according to the NY Times. The report finds that the SEC should consider disciplining the director of enforcement, Linda Thomsen; the direct supervisor of a fired SEC attorney, Robert Hanson; and the assistant director of enforcement, Mark Kreitman. The report further criticizes the “common practice” of giving outside lawyers’ clients access to high-level SEC officials when they had complaints about front-line investigators.
In June 2006, an SEC lawyer named Gary J. Aguirre claimed that for political reasons his superiors at the agency had impeded his inquiry into possible insider trading at Pequot. Aguirre said he was fired in 2005 because he wanted to take testimony from John J. Mack, currently the chief executive of Morgan Stanley and a close friend of Pequot’s founder, Arthur J. Samburg. The NY Times reports that the Inspector General report “primarily sided with Mr. Aguirre’s version of events, accusing enforcement officials of failing ‘in numerous respects’ to properly manage him and for allowing ‘inappropriate reasons to factor into its decision to terminate him.’”
With respect to Ms. Thomsen, the report states that she provided
“relevant information” about the commission’s evidence against Mr. Mack to Morgan Stanley’s counsel, Mary Jo White, a former United States attorney. At the time, Morgan Stanley was vetting Mr. Mack to be its new chief executive.
Ms. Thomsen, in describing e-mail messages, disclosed that there was “smoke” but “surely not fire,” the inspector general said. He also noted that Mr. Aguirre knew much more about the investigation, but that Ms. Thomsen did not consult him before speaking to Ms. White.
Mr. Kotz said it was “fairly routine” for outside lawyers to bypass front-line investigators and speak to S.E.C. supervisors when they had complaints about how their clients were being treated. This practice, Mr. Kotz said, would allow prominent lawyers to have better access to S.E.C. officials than less prominent ones.
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