The U.S. Securities and Exchange Commission has told Arthur Samberg, a once powerful hedge fund manager, it plans to file civil insider trading charges against him and his firm, Pequot Capital Management.
The charges revolve around trades Pequot conducted in software giant Microsoft Corp
Pequot, which invested $15 billion at its peak and ranked as one of the $1.4 trillion hedge fund industry's most successful firms, told clients it believes the charges are without merit and it plans to defend the matter vigorously.
The news comes less than three months after Samberg, 68, shocked investors and employees in late May with news he was shutting down his firm immediately because the government had reopened its probe into possible insider trading.
Samberg made the decision to shut the firm down before he and Pequot received the so-called Wells notices, said a person who is familiar with the fund, but is not authorized to speak about it publicly. The notices were received about six weeks ago, the person said.
A spokesman for the firm declined to comment.
In connection with the contemplated actions, the Commission staff may seek, among other things, a permanent injunction, disgorgement (plus prejudgment interest), a civil penalty, and /or other available remedies, Pequot wrote to clients in the letter.
Samberg told his clients in May the continuing investigation cast a cloud over the firm and had become a source of personal distraction.
Since then, he and a team of traders have been unwinding positions to return the roughly $3.5 billion the firm managed at the end to clients. A person familiar with the firm said the SEC notice will have no impact on the liquidation of the firm.
Pequot's end marks a sharp contrast to its years as one of the industry's most revered firms. For years, Samberg's fund beat the broader stock market and its recent performance would not appear to make a shutdown necessary.
Since it was launched 22 years ago, Samberg's fund earned a net annualized 16.8 percent, while the Standard & Poor's 500 index returned 8.5 percent.
Many stuck by Samberg. Byron Wien, a leading Wall Street strategist who joined Pequot four years ago, in July wrote about Samberg: I will never believe he has done anything wrong. It's too bad that Art's dream of a firm that continued after him was not realized because it was the right dream and he was the right guy to make it happen. That is the real tragedy of what has taken place.
But skittish investors, including pension funds are especially nervous about problems such as SEC probes right now and some industry analysts speculated some investors were ready to pull money away from Samberg.
Samberg, who famously once had a basketball court built in his offices for his employees, is now among a growing group of once prominent managers forced to shut down. James Pallotta shut down his Raptor fund, William von Mueffling shut down his hedge funds and Timothy Barakett said this week he is shutting down two of his three hedge funds.
(Reporting by Svea Herbst-Bayliss; editing by Lisa Von Ahn and Andre Grenon)