The sudden, surprising move by Pequot Capital’s Art Samberg to shut down his hedge fund operation in the long shadow of a stubborn probe into insider trading may hit Morgan Stanley shareholders. Hard.
The reason: John Mack and his impeccable timing. Morgan battled back after the meltdown and shored up its brokerage unit enough that its shares have popped 50% in the past three months. Now Mack the Knife’s past may sneak up behind him.
Remember when the Securities and Exchange Commission began its probe of Samberg, an agency investigator, Gary Aguirre, was fired for displaying “erratic” behavior. He then turned whistleblower to claim other government officials tried to slow down his bid to interview Mack, who was then the chairman of Pequot but moving toward taking the reins of Morgan Stanley.
Aguirre was trying to determine whether Mack—who had been bounced from Morgan in a power struggle once, then dumped by CS First Boston in a dispute with his European masters—had tipped off Samberg about a merger.
SEC officials said then that they never called Mack in to testify because they didn’t have enough evidence to warrant it.
After a high profile Senate probe, the whole messy issue seemed to disappear, until Samberg’s letter to investors yesterday announcing he was shuttering the $3 billion fund because "public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction." (Ed. Note: The portion of the Pequot investigation that concerned Mack has not been reopened).
The issue is now coming back to the fore as Mack needs to focus all his attention on getting Morgan in position to pay back its TARP. Samberg may not be the only Wall Street power player to be distracted by it.
And now, the next thing to disappear could be the cash of Mack’s Morgan Stanley shareholders.
Dan Colarusso is the managing editor of BusinessInsider.com.
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