Ex-Wife Helped Pequot Trading Probe, Could Get $1 Million
The ex-wife of a former Microsoft Corp. employee could be eligible for a $1 million bounty for helping U.S. regulators impose one of the largest-ever insider trading fines.
The Securities and Exchange Commission said yesterday it obtained “direct evidence” of market-moving information passed to Arthur Samberg of Pequot Capital Management Inc. by David Zilkha from a hard drive in possession of Karen Kaiser, Zilkha’s former spouse.
That means Kaiser may be eligible for a whistleblower reward of up to 10 percent of the $10 million fine Samberg and Pequot agreed to pay in settling the case.
“The bounty is by no means the reason why we brought forth the evidence to the SEC, but it is something that we certainly are going to be pursuing,” her lawyer, Mark Sherman, said in an interview yesterday.
The SEC, which pays bounties only in insider-trading cases, has asked lawmakers to expand that authority so it may reward tipsters for any leads that result in fines exceeding $1 million. Paying a bounty to Zilkha’s ex-wife might help the agency make the case that such a program yields results at a time when it is cracking down on hedge-fund trading abuses.
While the SEC has had authority to award insider-trading tipsters since 1989, it has received few applications and paid only $159,537 in total to five claimants, the agency’s inspector general, H. David Kotz said in a March report that urged better use of the program.
“Divorce can be the scariest thing on Wall Street,” said Peter Henning, a former SEC enforcement attorney who teaches at Wayne State University Law School in Detroit. “It exposes all of your secrets. People don’t hide things from their spouses.”
Samberg, 69, and Pequot, once the world’s biggest hedge fund, agreed to pay a total of almost $28 million, including forfeiture of profits and interest, to settle claims they traded illegally on confidential information from Zilkha in 2001.
The settlement resolves the agency’s second probe of Pequot’s trades, after SEC lawyers in 2006 said there was insufficient evidence to support claims. Investigators’ interest rekindled last year after they got copies of e-mails showing Zilkha got information about Microsoft’s earnings from colleagues at the Redmond, Washington-based software maker.
Kaiser copied the hard drive of the family’s shared computer during the couple’s divorce proceedings, her lawyers said last year. The SEC’s complaint against Zilkha doesn’t specify who provided the documents from the hard drive.
Zilkha’s attorney, Henry Putzel, didn’t return a phone call seeking comment on the case. Jonathan Gasthalter, a spokesman for Samberg and Wilton, Connecticut-based Pequot, declined to comment on their settlement. Samberg and the firm didn’t admit or deny wrongdoing under the accord.
SEC spokesman John Nester declined to comment on Kaiser’s eligibility for a whistleblower award. Individuals can’t apply for bounties until after fines are paid by alleged wrongdoers.
The divorce proceedings also triggered the revelation that Zilkha, who was hired by Pequot after allegedly providing insider information about Microsoft, told his psychologist that he was fired after he stopped giving tips. The psychologist, Peggy Thomson, disclosed the private conversations with Zilkha at an October 2009 court proceeding on the divorce.
“He said that Mr. Samberg wanted him to get inside information on Microsoft,” a court transcript quotes Thomson as saying. “Mr. Zilkha stopped providing it, he was fired.”
Senators Charles Grassley and Arlen Specter sent a letter to Samberg in December 2008 asking why he agreed in 2007 to pay Zilkha $2.1 million even though he’d left Pequot in 2001 after working for the hedge fund for less than a year. Pequot said it agreed to make the payments after Zilkha threatened to bring an employment complaint against the company.