SEC Under Senate Fire For Obstructing Hedge Fund Probe

by Leroy Baker, Tax-News.com, New York

29 August 2006

The US Senate is continuing to press the Securities and Exchange Commission to provide information in response to a request made earlier this month regarding the regulatory agency’s review of a prominent hedge fund.

In a letter sent to SEC Chairman Christopher Cox, Sen. Chuck Grassley (R-Iowa), finance committee chairman, expressed concern at the amount of time that the Commission was taking to respond for requests for information regarding events surrounding the investigation of the hedge fund Pequot Capital Management (PCM) and allegations that this investigation was suspended for political reasons.

According to the SEC, it has not been able to supply the Congressional inquiry with the requisite information because documents cannot be disclosed unless approved at a meeting of the full commission, which is not scheduled to gather until today. Grassley and Sen. Arlen Spectre (R-Penn) first sent requests for information on August 2.

In his letter, Grassley said that ability of Congress to obtain information in a timely manner "should not be hindered by the arbitrary calendar of pre-scheduled SEC meetings."

Grassley also expressed concern over the position taken by the SEC whereby its regulations prohibit employees from “disclosing” information about ongoing investigations. Grassley said that the decision by the SEC to reopen its own investigation into the PCM affair and then use this as a pretext for denying the requests for disclosure was "unacceptable."

"It gives the appearance of a sort of gamesmanship that would be inconsistent with your previous pledges of full cooperation," Grassley wrote.

The case is sensitive because Gary Aguirre, a former SEC investigator, told a Congressional committee earlier this year that he was fired when he tried to interview John Mack, the current chief executive of Morgan Stanley, as part of the investigation into PCM. It is alleged that his sacking was brought about because Mack is politically well connected.

The SEC had closed its enquiry into Aguirre's firing because it found no evidence that Mack used his political influence. However, Grassley claims that "documentary evidence" corroborating Aguirre's claims exists.

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