Pequot Capital settles with SEC in insider trading case

Hedge fund manager and its founder to pay $28m in inquiry over alleged Microsoft tip-off

By Marcy Gordon
Associated Press / May 28, 2010

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WASHINGTON — An investment firm and its founder and chairman, Arthur Samberg, have agreed to pay $28 million to settle regulators’ charges of insider trading in shares of Microsoft Corp., in a long-running case that prompted scrutiny in Congress and by an agency watchdog.

The Securities and Exchange Commission announced the settlement yesterday with Pequot Capital Management Inc., whose core hedge fund was liquidated last year, and with Samberg, a well-known money manager and philanthropist. They neither admitted nor denied wrongdoing in settling the SEC’s civil lawsuit filed in federal court in Connecticut.

The SEC alleged that the hedge fund traded Microsoft shares on confidential information provided by a former employee of the technology giant whom it later hired.

That alleged tipster, David Zilkha, was hired by Pequot in April 2001. The SEC alleges in a new administrative proceeding against him that Zilkha concealed from the agency staff that he had gotten inside information on Microsoft’s earnings and recommended to Samberg that he buy the stock based on the advance information.

Zilkha, 41, left Pequot in November 2001. His attorney, Henry Putzel III, didn’t immediately return a telephone call seeking comment yesterday.

Pequot Capital and Samberg together are paying $10 million in civil fines and $18 million in restitution of trading profits plus interest. In addition, Samberg is barred under the settlement from working for any investment adviser firm.

Samberg, 69, who has been Pequot’s chairman and chief executive since founding the firm in 1998, has been winding down Pequot, which was a major investment firm managing about $15 billion in assets at its peak.

Jonathan Gasthalter, a spokesman for Pequot and Samberg, declined to comment.

In December 2006, the SEC closed an earlier investigation of Pequot that it had started in late 2004. No enforcement action was taken. The agency reopened the inquiry in January 2009 after documents emerged in a divorce proceeding in Connecticut that showed that Pequot began paying $2.1 million to Zilkha in mid-2007.