The Whining Of The Bailout Boys: SEC Whistleblower Gary Aguirre And John Mack

 

“In an interview on Bloomberg TV, John J. Mack, the former chairman and chief executive of Morgan Stanley, called for an end to the harsh words that have been hurled at Mr. Dimon and Lloyd C. Blankfein, Goldman Sachs’s chief executive, over their pay.”

CNBC, 11 February 2014

 

The Bailout Boys Â

“In 2006, Gary Aguirre, a then-client of GAP [Government Accountability Project] attorneys, rocked the financial world by alleging wrongdoing by Securities and Exchange Commission officials for their failure to not allow a proper investigation to proceed, possibly due to political connections.

Aguirre is a former SEC lawyer who was dismissed by the agency following his attempt to subpoena John Mack – a prominent financial figure who later became the CEO of Morgan Stanley – in an insider trading investigation of Pequot Capital Management, one of the country’s leading hedge funds. Aguirre’s story sparked outrage, a Congressional investigation, and (eventual) vindication by the U.S. Senate.

Aguirre’s battle dates back to June 2005, when he suddenly encountered resistance at the S.E.C. during the course of his investigation of Pequot. A $7 billion hedge fund, Pequot’s CEO was Arthur J. Samberg, another prominent financial figure and longtime friend of John Mack, who preceded Samberg as Pequot CEO. Hedge funds are unregulated private investment funds that typically engage in unconventional investment strategies, such as short-selling.

Prior to that date, Aguirre had been investigating the case for months, issuing over 90 subpoenas without obstruction. When Aguirre recommended that Mack’s testimony be taken under oath, he was told by his supervisor that it would be difficult to obtain approval for the subpoena due to Mack’s powerful “political connections.” Over the course of the next two months, Aguirre’s supervisors refused to allow him to issue Mack a subpoena. Aguirre questioned this decision at every level up the chain of command (including SEC Chairman Christopher Cox), reporting his superior’s behavior and providing evidence supporting his subpoena request.

In September 2005, Aguirre was fired 11 days after being awarded a two-step pay increase….

Aguirre eventually testified again in front of the Senate Judiciary Committee, offering further analysis of the role of proper oversight in regards to hedge funds. More and more evidence emerged supporting Aguirre’s allegations. Finally, the Senate Finance and Judiciary committees released their full report, which completely validated all of Aguirre’s claims. This was a significant victory.

In May 2009, after numerous insider-trading investigations by the SEC, Pequot closed down. Many economists also feel that these large-scale hedge funds had a significant effect on the sub-prime mortgage market’s burst, which led to the current global recession. The S.E.C. continues to be criticized for a lack of internal oversight, as evidence by the Bernie Madoff scandal (which also involved a whistleblower).”

Government Accountability Project, The SEC and Gary Aguirre