S.E.C. Judge Says Pequot Case Wasnt Mishandled
By Walt Bogdanich
November 11, 2008
An administrative law judge at the Securities and Exchange Commission has concluded that S.E.C. officials did not mishandle an investigation into possible insider trading by a major hedge fund, Pequot Capital Management, and that no disciplinary action should be taken against two officials involved in that inquiry.
Those conclusions, released by the S.E.C. on Friday, are contained in a 15-page report by Brenda P. Murray, the S.E.C.s chief administrative law judge.
The report is at odds with the findings of both the agencys inspector general and Senate investigators. After inquiries, they accused commission officials of bungling the insider-trading investigation and then retaliating against an S.E.C. lawyer, Gary J. Aguirre, who criticized how the Pequot investigation was being carried out. The S.E.C. fired Mr. Aguirre.
No enforcement actions were taken in connection with the Pequot investigation, which was closed in late 2006.
Last month, the commissions inspector general, H. David Kotz, said in a 191-page report that he found evidence that raised serious questions about the impartiality and fairness of the S.E.C. investigation. He said the S.E.C. treated the Pequot investigation differently from others, and that a lawyer for a major Wall Street firm with an interest in the inquiry got special access to high-ranking commission officials.
Mr. Kotz recommended possible disciplinary action against the director of enforcement, Linda Thomsen; Mr. Aguirres direct supervisor, Robert Hanson; and the assistant director of enforcement, Mark Kreitman.
Ms. Murray disagreed, saying that the records she reviewed over the last couple of weeks did not support disciplining either Ms. Thomsen or Mr. Hanson.
She said any decisions about Mr. Kreitman would be made later.
Im very pleased with the results, Ms. Thomsen said. Im especially pleased for my colleagues and most of all I look forward to continuing to do the very important work we do during these very important times.
Mr. Hanson did not respond to a message seeking his comment.
John J. Nester, an S.E.C. spokesman, called Ms. Murrays decision thorough and objective, the product of an independent official with lifetime tenure.
Ms. Murray, in rendering her decision, did not act in her capacity as an administrative law judge, but rather as an individual who was asked by the S.E.C.s executive director, Diego Ruiz, to evaluate the inspector generals recommendations.
Ms. Murrays report was criticized by the inspector general, Mr. Kotz, by two senators and by Mr. Aguirre.
We were surprised and disappointed by the administrative judges decisions, Mr. Kotz said in a statement. Calling her findings flawed, he added: We also have serious concerns about the process utilized in arriving at these decisions. He declined to elaborate.
Senator Charles E. Grassley, a Republican of Iowa, who along with Senator Arlen Specter led a yearlong inquiry into the S.E.C.s handling of the Pequot investigation, said Ms. Murrays report read like the lawyers for the wrongdoers had a hand in writing it.
Senator Specter, Republican of Pennsylvania, said, It was pretty clear that Aguirre was fired because he was a whistleblower.
Mr. Aguirre said Ms. Murray had no business writing the report, because it was outside her jurisdiction as an administrative law judge. The job of writing the report, Mr. Aguirre said, was given to Ms. Murray to create a false impression.
The S.E.C. has spun this as if Murray was acting as a judge, Mr. Aguirre said. She was not.
Ms. Murray did not respond to a message seeking her comment. She said in her report that she reviewed most of the records used by Mr. Kotz in reaching his conclusion.
Lewis D. Lowenfels, an authority on securities law at Tolins & Lowenfels, said that while he was unfamiliar with the specifics of the Pequot investigation, he objected to any federal agency that merged the functions of prosecutor, judge, jury and appellate tribunal under the same roof.
Many states have an independent corps of administrative law judges who are not employed by any particular regulatory agency, Mr. Lowenfels said.
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