Ex-Wife Reaps $1 Million Award From SEC in Pequot Trading Probe

The U.S. Securities and Exchange Commission will pay the ex-wife of a former Microsoft Corp. employee $1 million for helping the agency successfully sue Arthur Samberg’s Pequot Capital Management for insider trading.

Karen Kaiser got the SEC’s biggest-ever whistleblower award after providing evidence that was used to win a $10 million fine from Samberg and Pequot, the agency said yesterday. In a May complaint, the SEC said Kaiser turned over e-mails contained on a computer hard drive that indicated Samberg received nonpublic, market-moving information from her ex-husband, David Zilkha.

“Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action,” the SEC said in a statement. The award was approved this week, the agency said.

Samberg, 69, and Pequot, once the world’s biggest hedge fund, agreed to pay almost $28 million, including forfeiture of profits and interest, to settle with the SEC. David Zilkha, who joined Pequot from Microsoft, is fighting the agency’s claims that he gave Samberg information that helped the money manager profit on trades of the software maker in 2001.

The SEC, which has until now paid bounties only in insider- trading cases, has new authority under the financial-regulation overhaul signed into law this week to reward any tip that results in fines exceeding $1 million.

The agency, which has had authority to pay insider-trading tipsters since 1989, has paid a total of $159,537 to five claimants, SEC Inspector General, H. David Kotz said in a March report that urged better use of the program.

Second Probe

The settlement with Samberg resolved the SEC’s second probe of Pequot, after the regulator’s lawyers said in 2006 that there was insufficient evidence to support a case. Investigators’ interest rekindled last year after they got copies of e-mails showing Zilkha obtained advance information about Microsoft’s earnings from colleagues at the Redmond, Washington-based technology company.

Karen Kaiser copied the hard drive of the family’s shared computer during her and Zilkha’s divorce proceedings, according to her lawyers.

“We initially got involved to figure out why David Zilkha seemed so reluctant to tell Karen about this $2.1 million payment from Pequot,” Kaiser’s attorney Mark Sherman said in a statement yesterday referring to money Zilkha received from the hedge fund in 2007. “Once we analyzed the family hard drive, we were able to help the SEC connect the dots.”

Samberg agreed to be barred from working as an investment adviser as part of the SEC settlement. He told investors last year he was winding down Pequot, based in Wilton, Connecticut.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

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