WASHINGTON - In what may be the largest settlement of its kind, the Securities and
Exchange Commission (SEC) has agreed to pay $755,000 to settle the
wrongful termination claim of Gary J. Aguirre, the attorney who headed
the SEC’s insider trading investigation of Pequot Capital Management
until his firing in September 2005.

A judge with the Merit
Systems Protection Board (MSPB), the federal agency with jurisdiction
over Aguirre’s termination claim, issued an order today finalizing the
settlement. The settlement sum equals Aguirre’s pay for four years and
ten months (the elapsed period since his September 2005 discharge), plus
his attorneys’ fees. Aguirre agreed to dismiss two related cases
against the SEC.

Government Accountability Project Legal
Director Tom Devine stated “Unfortunately, this large settlement is the
exception that proves the rule. Until Congress provides real protections
for financial regulatory employees such as Aguirre, existing law will
remain the best excuse for government regulators to turn a blind eye.”

The SEC’s settlement with Aguirre comes one month after the SEC filed
insider trading charges against Pequot, its founder, Arthur Samberg,
and David Zilkha, a former Pequot employee, based on facts uncovered by
Aguirre. Pequot and Samberg paid the SEC $28 million to settle the
charges against them. The case against Zilkha continues.

In
August 2007, two Senate committees published a scathing 108-page report
criticizing the SEC’s decision to fire Aguirre and close the Pequot
investigation, which included Pequot’s suspected insider trading in
securities of 20 publics companies.

The Senate report
chronicles Aguirre’s promising career at the SEC, including management’s
decision to give him a two-step pay raise at the end of his first year
for “consistently [going] the extra mile, and then some.”  

But
the praise vanished when Aguirre tried to subpoena an elite Wall Street
banker, John Mack. His supervisors blocked the subpoena, telling
Aguirre that Mack had “juice” and “political clout.”

Aguirre’s
July 27, 2005, email to his supervisors explained why the Mack subpoena
was essential and expressed concern that “treating Mack differently is
[not] consistent with the Commission’s mission.” The Senate Report tells
what happened next: “Just days after Aguirre sent an e-mail to
Associate Director Paul Berger detailing his allegations, his
supervisors prepared a negative re-evaluation outside the SEC’s ordinary
performance appraisal process.”  

One month later, the SEC
fired him without warning. The Senate report concluded that Aguirre’s
“termination appears to be merely the culmination of the process of
reprisal that began with the August 1 re-evaluation.”

Approximately one year after the Senate report, SEC Inspector General H.
David Kotz delivered his own report on Aguirre’s firing to then-SEC
Chairman Christopher Cox. Kotz recommended that Aguirre’s supervisors be
disciplined. To date, neither the current SEC Chairman, Mary Schapiro,
nor Cox, has done so.  

The Pequot investigation appeared to
have run its course when the SEC released its “Case Closing Report” in
December 2006, explaining its decision to close the entire
investigation, including Pequot’s trading in Microsoft options, without
filing charges.

But Aguirre did not stop his Pequot
investigation. He continued to collect and piece together the evidence
that Samberg had used illegal tips to trade options on Microsoft stock.
In April 2008, Aguirre obtained a court order forcing the SEC, over its
objection, to turn over to him key records of its Pequot investigation.

In late 2008, Aguirre uncovered the last pieces of evidence
necessary to prove an insider trading charge against Pequot, Samberg,
and Zilkha. On January 2, 2009, Aguirre sent a letter to SEC Chairman
Cox enclosing the new evidence.

Aguirre’s
16-page letter explained how this new evidence, when
combined with the evidence uncovered by him in 2005, proved that Samberg
had used illegal tips in directing trades in Microsoft options,
generating $14.2 million in profits to Pequot hedge funds under his
management. But still the SEC would not file a case.  

On May
26, 2010, Aguirre filed papers in his FOIA case seeking an order
directing the SEC to release additional Pequot records to him. He argued
the SEC had to turn over the records under FOIA, because it had filed
no case against Pequot or anyone else. Early the next morning, the SEC
filed charges against Pequot, Samberg, and Zilkha. The allegations
closely track the facts stated in Aguirre’s January 2, 2009 letter.  

Asked how he feels about the settlement, Aguirre replied, “I think
it’s fair to the public that the SEC pays for my work over the past
four years and ten months, since it generated $28 million to the U.S.
Treasury. But it’s a shame the team I worked with at the SEC did not get
to complete the Pequot investigation. The filing of the case in 2005 or
2006, before the financial crisis, would have been exactly
what Wall Street elite needed to hear at the perfect moment: the SEC
goes after big fish too.”