[Congressional Record (Bound Edition), Volume 155 (2009), Part 1] [Senate] [Pages 56-57] [From the U.S. Government Publishing Office, www.gpo.gov]SEC INVESTIGATION INTO PEQUOT CAPITAL MANAGEMENT TRADING Mr. SPECTER. Mr. President, the Finance Committee, under the chairmanship of Senator Grassley in the 109th Congress, and the Judiciary Committee, under my chairmanship in the 109th Congress, conducted an extensive inquiry into allegations of insider trading. The issue is succinctly framed in a letter which I wrote to Christopher Cox, Chairman of the Securities and Exchange Commission, in a letter dated December 24, 2008. I ask unanimous consent that the full text of this letter be printed in the Record at the conclusion of my statement. The PRESIDING OFFICER. Without objection, it is so ordered. (See Exhibit 1.) Mr. SPECTER. The matter could be most succinctly articulated by quoting from parts of this letter as follows: Dear Chairman Cox: Senator Charles Grassley and I have already issued public findings concerning the Securities and Exchange Commission's . . . investigation into Pequot Capital Management's . . . suspicious trading. Referring to insider trading. These findings also criticized the original Office of Inspector General's report, which essentially ignored former SEC investigator Gary Aguirre's complaints of political influence in the Pequot investigation . . . after the new SEC Inspector General, David Kotz, largely agreed with our findings and recommended disciplinary action against Mr. Aguirre's supervisors up to the Director of Enforcement, the SEC selected an initiating official who, in a matter of days, found that disciplinary action was unwarranted. That official was described in press accounts as an Administrative Law Judge, and it was not until further inquiry that the SEC admitted she was not acting in a judicial capacity in issuing her decision. I am now writing because recent events provide the SEC with an opportunity to make good on its Pequot investigation, despite having . . . closed the case in November 2006. . . . The investigation centered, in part, on evidence that David Zilkha, a Microsoft employee who joined Pequot in April 2001 and separated from Pequot in November 2001, may have given Arthur Samberg, Pequot's CEO, inside information regarding Microsoft. Documents recently filed in a Connecticut divorce case (Zilkha v. Zilkha) disclose that [[Page 57]] Pequot has made or promised to make payments of $2.1 million to Mr. David Zilkha. On December 1, 2008, and December 16, 2008, Pequot and Pequot CEO Arthur Samberg filed motions for protective orders, and the state court has scheduled the hearing on those motions for January 16, 2009. On December 10, 2008, Senator Grassley and I requested from Pequot and Mr. Samberg all records related to the payments to Mr. Zilkha, as well as an explanation of the payments. On December 17, 2008, Mr. Samberg responded that the payments to Mr. Zilkha were for the purpose of ``settling a civil claim related to his employment and termination by Pequot.'' Mr. Samberg enclosed a few documents, but we have requested additional records, and have asked for a complete production. Given the troubled history of this case, the SEC should also be seeking answers as to any payments made to Mr. Zilkha by Pequot. I therefore write to strongly urge the SEC to consider filing pleadings in the Connecticut action, so that the court will have all relevant information when it considers the Pequot and Samberg motions for protective orders. In essence, we have serious allegations of insider trading. We have the Inspector General of the SEC recommending serious disciplinary action. We have the matter being papered over by the SEC on what purported to be new conclusions reached by the administrative law judge where, in fact, the individual was not an administrative law judge. And now we find $2.1 million in payments or promised payments to an individual who may have been in the position to provide insider information. The matter is coming before a court in a domestic relations case, but that provides an opportunity to find those facts. This letter has not been answered, and I am taking this occasion to put it into the Congressional Record in the hopes that we may have some action by the SEC which will be calculated to get to the bottom of this matter. Certainly, this is something that ought to be of major concern to the Securities and Exchange Commissioners, to the Chairman, and to the SEC, generally. The Finance Committee and the Judiciary Committee, through the efforts of Senator Grassley and myself, have gone to very substantial lengths to deal with this issue. Oversight by the Congress is very hard to pick up these complex matters and get into them, but a lot of work has been done, and we are still undertaking to try to get to the bottom of the allegations of insider trading. The issue now has turned to be greater than insider trading on one specific matter, but to the integrity of the SEC itself, in pursuing these kinds of allegations and in following the facts wherever they may lead. Chairman Cox has limited additional tenure, but there is sufficient time for him to act if he will, and if he will not, Senator Grassley and I may seek to intervene ourselves. This is something which is the primary responsibility of the SEC, and it would be my hope that Chairman Cox would act on this matter to intervene, file an amicus brief, find out what the facts are on that $2.1 million to get to the bottom of these serious allegations of insider trading. Exhibit 1 U.S. Senate, Committee on the Judiciary, Washington, DC, December 24, 2008. Hon. Christopher Cox, Chairman, U.S. Securities and Exchange Commission, 100 F. Street, N.E., Washington, DC. Dear Chairman Cox: Senator Charles Grassley and I have already issued public findings concerning the Securities and Exchange Commission's (``SEC'') bungled investigation into Pequot Capital Management's (``Pequot'') suspicious trading. These findings also criticized the original Office of Inspector General's report, which essentially ignored former SEC investigator Gary Aguirre's complaints of political influence in the Pequot investigation. You welcomed our findings and worked to implement our recommendations. Nonetheless, after the new SEC Inspector General, David Kotz, largely agreed with our findings and recommended disciplinary action against Mr. Aguirre's supervisors up to the Director of Enforcement, the SEC selected an initiating official who, in a matter of days, found that disciplinary action was unwarranted. That official was described in press accounts as an Administrative Law Judge, and it was not until further inquiry that the SEC admitted she was not acting in a judicial capacity in issuing her decision. I am now writing because recent events provide the SEC with an opportunity to make good on its Pequot investigation, despite having precipitously and unjustifiably closed the case in November 2006. In 2006, the SEC closed its investigation of April 2001 trading by Pequot in Microsoft stock. The investigation centered, in part, on evidence that David Zilkha, a Microsoft employee who joined Pequot in April 2001 and separated from Pequot in November 2001, may have given Arthur Samberg, Pequot's CEO, inside information regarding Microsoft. Documents recently filed in a Connecticut divorce case (Zilkha v. Zilkha) disclose that Pequot has made or promised to make payments of $2.1 million to David Zilkha. On December 1, 2008, and December 16, 2008, Pequot and Pequot CEO Arthur Samberg filed motions for protective orders, and the state court has scheduled the hearing on those motions for January 16, 2009. On December 10, 2008, Senator Grassley and I requested from Pequot and Mr. Samberg all records related to the payments to Mr. Zilkha, as well as an explanation of the payments. On December 17, 2008, Mr. Samberg responded that the payments to Mr. Zilkha were for the purpose of ``settling a civil claim related to his employment and termination by Pequot.'' Mr. Samberg enclosed a few documents, but we have requested additional records, and have asked for a complete production. Given the troubled history of this case, the SEC should also be seeking answers as to any payments made to Mr. Zilkha by Pequot. I therefore write to strongly urge the SEC to consider filing pleadings in the Connecticut action, so that the court will have all relevant information when it considers the Pequot and Samberg motions for protective orders. Please respond as to whether the SEC will take such an action. I also ask that you notify me immediately if the SEC reopens its investigation or takes any enforcement action in light of this new evidence. Sincerely, Arlen Specter. Mr. SPECTER. Madam President, in the absence of any other Senator on the floor seeking recognition, I suggest the absence of a quorum. The PRESIDING OFFICER (Mrs. McCaskill). The clerk will call the roll. The assistant legislative clerk proceeded to call the roll. Mr. ISAKSON. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded. The PRESIDING OFFICER (Mr. Salazar.) Without objection, it is so ordered. ____________________