July 24, 2006

Aguirre, Lawyer React to Morgan Stanley Announcement

WASHINGTON (HedgeWorld.com)--The U.S. Securities and Exchange Commission is looking into possible insider trading at Pequot Capital Management, has asked the chief executive of Morgan Stanley, John Mack, for an interview, and has thereby given Gary Aguirre an opportunity to claim some measure of vindication.

The New York Times reported the Pequot investigation June 23, and it was much discussed at a hearing of the Senate Judiciary Committee June 28. But Morgan Stanley acknowledged the SEC's interest in talking to Mr. Mack only Friday.

"John immediately responded that he is happy to meet with the commission staff, and he welcomes the opportunity to put to rest any issues surrounding this matter," according to Mr. Mack's spokeswoman.

The New York Times' story was largely based upon a letter written by a former SEC attorney, Gary J. Aguirre, and sent to several members of Congress. That letter claimed that Mr. Aguirre's investigation of Pequot, based in Westport, Conn., ran into an administrative wall last summer when he decided that he needed the testimony of Mr. Mack.

On Friday, subsequent to the Morgan Stanley statement, Joanne Royce of the Government Accountability Project, a whistleblower protection organization that has been representing Mr. Aguirre, commented on this development. "I sincerely hope that the [Senate] Banking Committee, with its oversight jurisdiction, does what it can so other ethical SEC staffers won't have to pay the price that Mr. Aguirre paid." The Banking Committee has a hearing on the regulation of hedge funds scheduled for Tuesday [July 25]--this news will likely impact those proceedings.

Ms Royce also said, according to the statement, that the SEC's inspector general has informed her that it has reopened its investigation into Mr. Aguirre's charges of favoritism and retaliation and will likely interview Mr. Aguirre.

The GAP statement said, further, that neither Mr. Aguirre nor Ms. Royce would have further comment at this time.

Mr. Aguirre claimed in the letter and in subsequent testimony that when he began insisting on issuance of a subpoena to Mr. Mack, he ran into resistance from his superiors. He protested this up to the chairman of the SEC, Christopher Cox, and was soon thereafter fired.

Pequot has denied any wrongdoing in the trades underlying Mr. Aguirre's original investigation, and a spokesman repeated that denial Friday (July 21).

Mr. Mack, 61, became chairman and chief executive of Morgan Stanley, New York, in June 2005. This was something of a Bonapartist return from Elba, because Mr. Mack thereby replaced Philip Purcell as chief executive. Mack had been president and chief operating officer at Morgan Stanley from 1993 to 2001, when he left as a result of a power struggle with ?? 1/2 Philip Purcell.

The island of Elba in this case looked a lot like Westport, Conn. Mr. Mack was briefly chairman of Pequot before his return to Morgan Stanley.

CFaille@HedgeWorld.com

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