Andrew Clark in New York
Saturday June 24, 2006
The Guardian
The low-profile, high-earning world of hedge funds suffered a jolt yesterday as allegations surfaced of political influence and insider dealing at one of America's most prominent players, Pequot Capital Management.
A former investigator at the Securities and Exchange Commission has disclosed that the authority has been examining suspicious trades at Pequot - a Connecticut-based fund which has $7bn (£3.8bn) under management and operates from offices in both the US and Britain.
Gary Aguirre, who was an SEC lawyer until September, alleges that he was praised and awarded a pay rise by the authority for his work on the case - but then fired 11 days later because he sought to interview one of Wall Street's most influential figures, John Mack.
Mr Mack was briefly the boss of Pequot last year before he was appointed chairman of the investment bank Morgan Stanley. In an 18-page letter sent to senior congressmen and leaked to the New York Times, Mr Aguirre maintains that his superiors blocked him from subpoenaing Mr Mack citing his "powerful political connections". Known as "Mack the Knife", the banking chief was a leading fundraiser for President Bush's electoral campaign.
The Pequot investigation again raises questions about the conduct and regulation of hedge funds, which usually require minimum investments of at least £100,000. In the US, many are only open to those with a net worth of at least $5m.
Pequot, named after a native American tribe, is one of America's oldest hedge funds and was once the world's largest. Its quirky Connecticut campus has a half-sized baseball court next to the trading floor to help fund managers wind down.
The fund is alleged to have made 18 questionable trades ahead of big deals. In one case in 2001, Pequot bought shares in a Chicago-based lending business, Heller Financial, just before it was taken over by General Electric Capital. Pequot simultaneously took a short position in General Electric, yielding an $18m profit.
Pequot vigorously denied the allegations yesterday as "unfounded" and "unsupported by any evidence". The Senate finance committee is examining the affair.
Harvey Pitt, former chairman of the SEC, said Mr Aguirre's treatment was disconcerting and should be closely scrutinised: "There's no question that these developments are troubling."
AI
