Eight Years and Nine Investigations Later, Pequot Capital Receives Wells Notice From SEC

Eight years and nine investigations after certain trades that occurred in 2001, the SEC staff has sent Pequot Capital Management a Wells Notice notifying Pequot that it intends to recommend that the Commission bring an enforcement action against the firm.

As discussed here and here in excruciating detail, the trades under investigation relate to General Electric’s acquisition of Heller Financial in the summer of 2001.  Before the acquisition was publicly announced, Pequot’s Arthur Samberg directed the purchase of “a little over a million shares” of Heller Financial stock and also directed Pequot to short shares of GE during the same time period.  After the acquisition was announced, Samberg sold the Heller stock and covered the GE short position, resulting in approximately $18 million in profits over a period of a few weeks.

These trades set in motion motion nine –I said nine – subsequent investigations by entities including the SEC’s Division of Enforcement (twice), the Senate Finance and Judiciary Committee (twice), the SEC’s Inspector General (twice), an SEC Initiating Official (reviewing the SEC’s Inspector General’s disciplinary recommendations), the FBI, and prosecutors in the SDNY. (See the full list of nine here).

DealBook reports that the firm received the Wells Notice from the SEC about six weeks ago. In an August 10, 2009 letter to Pequot investors, Samberg asserted that “the Wells Notices and any resulting enforcement action are without merit.”

Via DealBook, the text of the letter appears below:

August 10, 2009

Dear Investor:

We would like to make you aware that Pequot Capital Management, Inc. and Art Samberg have received Wells Notices from the staff of the Division of Enforcement for the Securities and Exchange Commission (the “Commission staff”) relating to their trading in Microsoft securities over 8 years ago. The Commission staff intends to recommend that the Commission bring civil injunctive actions against them, alleging that they violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In connection with the contemplated actions, the Commission staff may seek, among other things, a permanent injunction, disgorgement (plus prejudgment interest), a civil penalty, and/or other available remedies. With respect to Art, the Commission staff also intends to recommend that the Commission authorize the institution of administrative proceedings against him pursuant to Section 203(f) of the Investment Advisers Act and may seek an investment advisory bar.

We believe the Wells Notices and any resulting enforcement action are without merit and intend to defend the matter vigorously.

We do not believe this development impacts the process of liquidating the remaining securities in the Pequot funds.


Pequot Capital Management, Inc.