An investment firm and its founder and chairman, Arthur Samberg, have agreed to pay a total of $28 million to settle regulators' charges of insider trading in shares of Microsoft Corp., in a long-running case that prompted scrutiny by Congress.
The Securities and Exchange Commission announced the settlement Thursday with Pequot Capital Management Inc., whose core hedge fund was liquidated last year, and with Samberg, a prominent figure in the financial world.
They neither admitted nor denied wrongdoing in settling the SEC's civil lawsuit filed in federal court in Connecticut.
The SEC alleged that the hedge fund traded Microsoft shares on confidential information provided by a former employee of the technology giant whom it later hired.
That alleged tipster, David Zilkha, was hired by Pequot in April 2001. The SEC alleges in a new administrative proceeding against him that Zilkha concealed from the agency staff that he had gotten inside information on Microsoft's earnings and recommended to Samberg that he buy the stock based on the advance information.
Zilkha, 41, left Pequot in November 2001. His attorney, Henry Putzel III, didn't immediately return a telephone call seeking comment Thursday.
Pequot Capital and Samberg together are paying $10 million in civil fines and $18 million in restitution of trading profits plus interest. In addition, Samberg is barred under the settlement from working for any investment adviser firm.
Samberg, who has been Pequot's chairman and CEO since founding the firm in 1998, has been winding down Pequot, which is based in Westport, Conn.
Jonathan Gasthalter, a spokesman for Pequot and Samberg, declined to comment.
The SEC closed an earlier investigation of Pequot in December 2006. The agency reopened it after documents emerged in December 2008 in a divorce proceeding in Connecticut that showed that Pequot began paying $2.1 million to Zilkha in mid-2007.
As rumors swirled in April 2001 that Microsoft would miss its earnings estimates for the latest quarter, Samberg sought information from Zilkha, who had just accepted Samberg's offer to work at Pequot, the SEC alleged in its suit. Zilkha then asked a former Microsoft colleague, who told him that the company would meet or exceed the earnings estimates, the agency said.
By trading on the information from Zilkha, Pequot and Samberg made more than $14 million for the Pequot funds, the SEC said.
"The cases have two particularly troubling aspects — a hedge fund manager trading on illegal insider information, and his tipper source who withheld crucial information about the scheme during an SEC investigation," SEC Enforcement Director Robert Khuzami said in a statement. "Both are high-priority targets" for the agency's enforcement division, he said.
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