D.C. Mack Attack: Pols Slam SEC’s Probe of Pequot

By Roddy Boyd
New York Post
December 6, 2006

Capitol Hill lawmakers grilled Securities and Exchange Commission officials yesterday, confronting the Wall Street cops with charges they went easy on politically connected Morgan Stanley boss John Mack in an insider-trading investigation.

The Senate Judiciary Committee held hearings yesterday to examine whether Mack's political influence protected him from being investigated in an insider-trading case involving hedge fund giant Pequot Capital Management.

"At best, it looks like an extraordinary lack of oversight [by the SEC]," Pennsylvania Sen. Arlen Specter said. "At worst, it looks like some sort of cover-up."

The charges of favoritism at the SEC exploded into view when former SEC lawyer Gary Aguirre told Senate investigators his supervisors - who had just given him a promotion - fired him to protect Mack, who raised at least $200,000 for the reelection campaign of President Bush and more recently gave at least $36,000 to the Democratic Party.

The basis of Aguirre's charges centers on General Electric's 2001 takeover of Heller Financial. The trading pattern of Pequot triggered SEC sensors, and eventually the case fell to Aguirre to investigate.

Aguirre argued that Mack's role as head of Morgan Stanley in 2001 - the financial adviser to Heller Financial - and his close relationship to Pequot founder Art Samberg, merited taking his deposition.

Soon after, Aguirre was fired for what officials called unprofessional conduct.

However, a former colleague of Aguirre, enforcement branch chief Eric Ribelin, offered testimony that generally supported Aguirre's contention that the SEC soft-pedaled its handling of Mack.

Earlier this week, the SEC announced that it formally dropped the investigation into Pequot without filing any claims.

Also, a case-closing memorandum provided by the SEC in the Pequot matter said that Mack had no knowledge of the GE-Heller deal when he moved to CSFB from Morgan in 2001.

Aguirre's former supervisor, enforcement-division branch chief Robert Hanson, yesterday was tongue-tied when confronted with an incriminating e-mail in which he described John Mack as "another bad guy."

The SEC's Hanson first said he did not remember the basis for writing the e-mail, which was dated 18 months ago, then said it was a reference to Mack's nickname as a cost-cutter, "Mack the Knife."

Shortly thereafter, Hanson said, "In hindsight, it was probably to encourage, probably, the investigation to wherever it led."

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