Ex-SEC Attorney Testifies on Probe

A former government attorney told Congress on Wednesday that he was fired last summer after he tried to subpoena a prominent Wall Street executive to testify in an insider-trading probe of a major hedge fund.

Gary Aguirre, who led the Securities and Exchange Commission’s investigation of Pequot Capital Management Inc., said he was told by his supervisors that it would be difficult to obtain the subpoenas because the executive had “very powerful political connections.”

The SEC was investigating whether the hedge fund had received a tip from an individual about an upcoming merger.

“By mid-June, growing evidence pointed to one person, the former CEO of a large investment bank,” Aguirre said in written testimony to the Senate Judiciary Committee.

Under questioning by committee members, he identified the executive as John Mack, who is the chairman and chief executive of Morgan Stanley Inc.

Morgan Stanley said Aguirre had provided no evidence to support his allegation against Mack, a major fundraiser for President Bush’s campaigns. At the time in question, Mack was CEO of Credit Suisse First Boston.

The panel is looking into problems involving the hedge fund industry, which commands trillions of dollars in assets.

No charges have been brought against Pequot, a hedge fund with some $6.5 billion in assets that is overseen by Arthur Samberg, a well-known money manager and philanthropist. Pequot has denied that there was any improper activity by the fund. The SEC investigation of the fund and Aguirre’s accusations were first reported Friday by the New York Times.

SEC officials have denied Aguirre’s allegation of political influence.

Also Wednesday, top U.S. House Democrats said they planned to introduce legislation to revive a government effort to regulate hedge funds that was blocked last week by a court.

Rep. Barney Frank (D-Mass.) said he would unveil a bill today to give the SEC “clear authority to require registration and monitoring” of hedge fund advisors. A federal appeals court last week threw out an SEC rule narrowly adopted in late 2004 that required most U.S. hedge fund advisors to register with the investor protection agency and open their books for occasional inspections.

Reuters was used in compiling this report.